Metro chief: I’m a bank revolutionary
Vernon Hill on his FTSE 100 hopes for Metro Bank
VERNON HILL, founder and chairman of Metro Bank, does not mince his words about the state of his larger rivals. ‘They’ve been running a cartel for all these years,’ he declares. ‘Their underlying philosophy is they are doing you a favour when you are a customer,’ he laughs.
But he saves his most barbed remarks for the state of British banks’ computer systems.
‘The banks’ IT systems are only one step above the quill pen.’
Such bravado is vintage Hill. The billionaire American launched Metro Bank in Britain in 2010. Last year, he brought the business to the stock market and since flotation, its shares have rocketed by 85 per cent.
The group, which has 48 branches in London and the South East, has left British City analysts baffled. It has yet to turn a profit, but is valued by the London stock market at £2.86 billion.
Hill’s personal stake of 5.9 per cent is worth about £170 million. It comes on top of a huge fortune already amassed in US banking.
For Metro Bank, the FTSE 100 now seems an achievable target. ‘We’ve got to get to about £4 billion,’ he says. But his ambitions are even higher. ‘We are very close to one million accounts in a country where people say no one switches bank accounts. Our balance sheet has just passed £10 billion.
‘If we only get 5 per cent of the British deposits market, that is £100billion. If you value the bank at about 20 per cent of that, you are looking at a £20billion company.’
Most in the City do not quite agree and the majority of analysts argue the bank is rather overvalued.
Hill points out that the valuation is not up to him, it is up to the market. But he does believe the scepticism about Metro Bank’s value is because the City looks at it as if it were an old-fashioned big British bank.
‘The City analysts question the price at this level but they have never seen anything like a growth bank before. The big four or five British banks are shrinking. They know they are shrinking. We are growing towards prosperity; they are trying to cut their way to prosperity. So Metro is a fundamentally different business from other British banks. It is much more like an Apple.
‘The people who do not understand this looked at us through the eyes of British banking. But the American investors all understood growth. This is a fundamental cultural difference between America and Britain.’
To some the go-getting confidence and unbridled optimism may sound a little like Donald Trump. And the 71year-old Hill has a similar background. Both of their fathers were in property (though Hill’s did not make the same fortune as Trump senior) and both attended the same renowned business school in New Jersey.
‘I went to Wharton like Trump,’ says Hill. ‘Our years crossed but I didn’t know him then.’
He has since made Trump’s acquaintance and has known the President for many years. Reluctant to comment on the Presidency, Hill does have a simple view of why Trump won and indeed why the UK voted for Brexit.
‘Brexit was a revolt of the population against the Establishment in Brussels and in London. Trump is a revolt against the Establishment in Washington,’ he says approvingly.
So is Hill cut from the same cloth? ‘Yes, I am a revolutionary. Our marketing strategy for Metro was “Join the revolution”.’
Hill has always carved his own path – opening his first bank, Commerce Bancorp, at the age of just 26. The business grew to be the 18th largest bank in America – a country where there are thousands of banks. Commerce Bancorp was eventually bought out for $8.5billion – his own stake landing him a $400million windfall.
‘When I decided to do this British thing on a crack, I decided we would run it exactly the way we did the New York model – change nothing – and that is the key to our success.’
Hill’s eccentricity is most evident in his attachment to his dog – the Yorkshire terrier Duffy. (Technically, this is Duffy II as the first Duffy died in 2015). And one of the launch gimmicks of Metro was its dog-friendly policy, mapped again on a similar approach to the one he adopted at Commerce Bancorp.
It is, explains Hill, both a bit of fun but is also intended to say something about the culture and approach of the bank. ‘It all started in New York when my wife was at a Chase [one of the leading US retail banks] with Duffy. Chase would not let the dog into the bank. So we turned it into a whole thing with our bank in America. We called it ‘Dogs rule’, we have dog biscuits and dog bowls. We made it fun. It took on a life of its own here in Britain. The customer takes it to mean, “If you love my dog, you must love me.” And it seems to make us more human. The executives of these big banks don’t seem this way.’
Duffy is not present at our breakfast meeting, but the canine accompanies Hill on most public outings and was even present when, on the day of Metro Bank’s flotation, Hill was the guest of honour to open the day’s trading at the London Stock Exchange. It was Duffy’s paw that pressed the button to start trading. In the side office, Hill signed the Exchange’s official book to mark the occasion. Duffy gave a paw print.
But the dog friendliness is not the key to a successful bank, according to Hill. That is simply about getting customer service right.
‘To open an account at a British bank takes a long time,’ Hill says. ‘With us, in 15 minutes you can open the account and walk out with a bank card.
‘And the British banks treat their business customers even worse than they treat their retail customers. It takes six to eight weeks to open a business account. We do it one hour.’
Businesses account for almost half of all Metro Bank’s customers. What is more, Metro does not try to offer the best interest rates. Once again Hill makes a comparison with Apple. ‘No one buys an Apple iPhone 7 because it is cheap. You are buying into the Apple world.’
Banking, says Hill, should have some fun and entertainment and customer choice. While many claim online banking is the way forward and larger banks are shutting branches, Hill believes customers want the whole range.
‘The customers want a complete selection so they can choose the channel they can use every day from stores to ATMs to the mobile phone or online.’
So far Metro has not branched out beyond London and the South East. Hill won’t be drawn on details of their next plans but says simply that this year, ‘we are going West and we are going North.’
This week, the City will get a fresh chance to assess Metro Bank as it announces its first full year’s results since flotation. Quarterly figures have shown the bank losing money, albeit at a declining rate. ‘We were profitable in the fourth quarter,’ says Hill, but he will say no more.
These days Hill divides his time between London where he has an apartment on Park Lane and his home in New Jersey. He claims not to indulge himself with his wealth, but admits he has built a golf course near his home – another faint echo of Donald Trump.
He also has a palatial house. Not a gilded tower, but a vast mansion. ‘It is a big house,’ Hill admits. He clearly does not want to dwell too much on this. ‘You can Google it,’ he says. So we did.
Villa Collina – known as Hill House – is a huge 46,000 square foot mansion. It is officially the biggest private home in New Jersey. Its front even looks a little like the White House. But the President can rest easy – his home trumps Vernon Hill’s in size, at 55,000 square feet.
The City analysts question the price but they’ve never seen a growth bank before
British banks take six weeks to open a business account – we do it in one hour
ACCORDING to the big banks, high street banking is in terminal decline. It is the excuse trotted out every time they close a branch. Falling customer usage, they argue, plus rampant demand for internet banking and the latest apps.
As we exclusively revealed last month, more than 400 branches (banks and building societies) have already been given their marching orders this year. If things continue like this, it will be a record year for closures.
How sad, especially in light of the decimation of the high street generally, a situation that will get worse if the revaluation of business rates goes ahead in two months’ time.
If the British Retail Consortium has got its numbers right, 80,000 shops could shut if the Government goes ahead with its madcap plans.
Yet not all financial organisations operating on the high street are giving up the ghost. Metro Bank is opening branches (48 and counting) while Nationwide Building Society has said it is keen to set up new ones in towns where rivals have all pulled out.
Coventry Building Society is also fiercely committed to its 70-strong branch network. These organisations are bucking the trend because they are determined to deliver excellent customer service. Walking into one of their branches is a near joyous experience. Staff actually want to help, usually with a smile. It encourages you to go back, which from the bank’s point of view is surely the name of the game.
It is no coincidence that all three brands feature prominently in independent analysis of financial institutions for their fair treatment of customers.
Website Fairer Finance, for example, rates Coventry’s savings accounts the best in terms of customer service, transparency and complaints handling. Nationwide and Metro score highly for their bank accounts.
Coventry, the country’s third largest building society with branches as far north as Sheffield and as far west as Frome in Somerset, deserves a special mention. It is currently investing in its branches and is proud of the fact it operates in areas (especially around Coventry) that other financial institutions have long given up on.
Its branch staff go out of the way to support their local communities and are encouraged to do so by the society’s management. It is also intent on doing the right things. Hence the recent launch of an internet tool that allows its 1.5million savers to compare the interest they are earning against rival accounts.
Given Coventry’s average savings rate is just short of 1.8 per cent, it knows it will usually come out of any comparison smelling of roses but it is a brave move nonetheless. I can’t wait for NatWest and HSBC to follow Coventry’s lead – it would lead to a stampede of savers screaming for the exit door.
It also treats all complaints seriously and goes out of its way to resolve them before they end up with the Financial Ombudsman Service. Coventry has embarked on other customer-friendly initiatives. It is currently overhauling the terms and conditions of its savings accounts so they are understandable to all readers, rather than a minority.
It is also planning to inform those who phone its call centres how long they can expect to wait before their call is answered (it currently provides indicative waiting times, based on information gathered 24 hours previously).
This Friday, the society will publish its 2016 financial results. All the indications suggest they will be a good set of numbers with profits up, assets increasing and costs pared back to the bone. All done without axing branches or automating anything that moves.
The big banks should take a leaf out of Coventry’s book and start investing in quality customer service. Maybe then they wouldn’t shut so many branches.
Big names should take a leaf out of Coventry’s book and start investing in quality service
IT IS decision time for shareholders in investment trust Alliance. Unless they intend to vote in person, they have until Wednesday to let the board know whether they support the move to overhaul the way the £3.2billion trust is managed.
On the table is a proposal to parcel out the management of the trust’s assets to eight top investment specialists who will then attempt to sprinkle magic on the parcels of money they have been given. Overseeing them will be investment group Willis Towers Wilson which will keep an eye on them and sack those that do not deliver.
Nothing is guaranteed when it comes to investments but shareholders should vote for change. The trust needs a pick-me-up and this multi-manager approach could do the trick.