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

The Daily Telegraph - Business - - Business -

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

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