Metro Bank push to keep the party going after celebrating 10 years
A year to forget means the lender is mulling buyouts to get the show back on the road, reports Lucy Burton
Face painting, popcorn stands, shoe shining and stilt walkers is not a combination you would expect from a bank branch. But when eccentric American billionaire Vernon Hill opened the UK’s first high street bank in a century a decade ago, he didn’t want to do so quietly.
Branch opening parties lasted days and it wasn’t long before Metro Bank, which markets itself as a dog-friendly lender with a “chief canine officer”, was popping up on expensive high street corners across Britain.
So a global pandemic and a looming regulatory inquiry wasn’t going to stop the company from celebrating its 10-year anniversary last week. The lender hired Heather Small, the M People singer, to host an online concert with staff choir the “Metronomes” providing backing vocals. The first song of the evening – Moving On Up
– could not have been more fitting. Moving on up is exactly what its weary investors are hoping Metro will do.
Since its stock market float in 2016, when the lender was valued at £1.6bn and bosses hoped it would enter the FTSE 100 within three years, shareholders have seen 95pc of their investment vanish. At the time of listing Metro said it would have
110 branches (it is said to spend twice the industry standard on each new site), a cost-to-income ratio of 60pc and a return on equity of 18pc by 2020.
Metro was “driving a revolution in British banking”, shareholders heard from Hill, who had compared opening a bank account in the UK to having your teeth drilled and called the sector’s IT “one step up from a quill”.
The bank’s results on Wednesday will emphasise just how much ambitions have changed. John Cronin, a bank analyst at Goodbody, said the lender “doesn’t have a hope of making a profit on a five-year view unless something radically changes” after a loans scandal last year sent its shares crashing and shone a light on corporate governance concerns.
The disastrous year ended in the exit of Hill, as well as former chief executive Craig Donaldson, while a regulatory investigation into the loans gaffe is still ongoing. How to move on after the worst year in the bank’s history and as the UK economy shrinks due to coronavirus is the key question.
One fast-track ticket to growth could be through takeovers. Sources said the board would this week decide on whether to snap up peer-to-peer lender RateSetter.
The board has been weighing up whether to go ahead with the deal given the current climate, fearing any further negative publicity if it acquires the business and things go sour.
Insiders said that if a takeover does go ahead it will be in part because Metro has hashed out a deal that keeps it free from any risks associated with RateSetter’s loan book (although there is no suggestion there are any – it has £70m protecting investors’ capital).
One appeal for RateSetter is that Metro plans to keep its entire workforce if it goes ahead, sources said. Its expertise in personal loans could be a big boost to the bank, which is eager to expand in this area.
If the board walks away from RateSetter then it may be because it is eyeing other deals. Chief executive Dan Frumkin is believed to be keen on expanding through acquisitions while Hill’s replacement – building society “bad boy” Robert Sharpe – previously turned Bournemouth-based mutual Portman from the 13th largest society into the third biggest through multiple takeovers, before it merged with Nationwide in 2007.
Sharpe, famous for his lucrative pay-off at Portman Building Society and an affair with a colleague half his age, was credited with transforming Britain’s seventh-largest society West Bromwich after the 2008 crash.
Another option is whether to start selling insurance. Customers who store expensive items in the bank’s safe deposit boxes must buy policies from a third party, so it is considering “cutting out the middle man”. This idea is “very much on the to-do list”, says one person close to the plans.
Any expansion will be against a backdrop of steep cost cuts and a banking landscape that has changed significantly since 2010. Investors won’t appreciate any more branch parties if they continue to lose money, and any new ideas that are nodded through will face intense scrutiny. The next decade will not be easy.
Metro Bank is said to spend twice the industry standard on each new branch