Beware of the silent run
Metro Bank is becoming a huge test for the Bank of england’s Prudential regulatory Authority (PrA).
established in the wake of the financial crisis of a decade ago, the PrA has thus far managed to steer leaking banks, such as the Co- op and tSB (after Lloyds and Spanish ownership), to safe shores.
there was much brave talk of ending ‘too big to fail’ in the wake of the 2008/09 meltdown. But the approach of first Andrew Bailey at the PrA, and its current head Sam Woods, has been to try to stabilise problem institutions by encouraging equity and bond investors to step up to the plate rather than allowing failure.
the hammed-up weekend social media post of customers piling into a Metro Bank branch, amid fears about their deposits, can be ignored.
After all, consumer deposits are insured up to £85,000 and it is only people engaged in some kind of exceptional transaction, such as a property sale, who might be vulnerable should the slide in Metro’s share price signal something worse.
But what we also know from the financial crisis is that it is the unseen run which really
matters. this is the withdrawal of deposits made by institutions and other banks in the wholesale money markets.
When Northern rock first ran into difficulty in the summer of 2007, the Bank of england stepped in as the lender of last resort. Since the financial crisis, the Bank has operated all manner of loan windows designed to ease temporary pressure on the banking system.
In Metro’s case, the important thing now is to underpin capital.
the delay in getting the proposed £350m rights issue over the line has offered shortsellers a free lunch.
Indeed, with each fall in the share price, repairing Metro’s capital becomes harder. that is why it is now suggested that it may have to dispose of some of its loan book. If, and when the refinancing is over the line it is hard to imagine the authorities will continue to support chairman Vernon Hill or chief executive Craig Donaldson.
the latter’s optimism about the quality of Metro Banks’s loan book has been wholly unfounded.
the easiest solution to Metro’s problem would be absorption by another financial group. But at a time when branch banking has become expensive, it is not clear who would want to take on a costly experiment in architect-designed banking halls.
Tech star
A FASt riser on the Sunday times rich list is ocado boss tim Steiner.
He has confounded early sceptics among the retail analysts and fellow founders, who bailed-out early, by turning what was initially seen as an upstart grocery delivery service into a potential global champion.
Last week he added to his wealth by £29m, under a five-year performance scheme based on the rise in the company’s share price.
But given that he already holds 23.5m shares in the group, and the rocketing share price has already added some £180m to his wealth in the past year, there must be questions as to whether the Value Creation Plan, which could yet deliver a further £100m over the next five years, might be a trifle excessive.
Steiner’s achievement in turning Marks & Spencer into a grocery partner and unlocking the tech-value of the software, robotics and logistics of the enterprise is very smart. With technology sold to retailers in France, Canada, Australia and beyond, it is possible Steiner could become the grocery industry’s Jeff Bezos.
But as with all UK cutting- edge enterprises – ArM Holdings and Worldpay come to mind – the biggest risk is that an overseas predator will take ocado out before the greatest value is created.
It would be nice to think that Steiner’s existing investment, together with his golden handcuffs, will act as a bulwark against predators.
If the UK is to continue be the tech-hub it has become, it will need to.
Party pooper
AMoNg the weaknesses of John de Blocq van Kuffeler’s valiant effort to regain control of Provident Financial through his NonStandard Finance vehicle, is the remoteness of the Flemish aristocrat from the poorest sections of society he seeks to serve.
the optics will not be improved by van Kuffeler’s celebration of his 70th birthday at the elegant Serpentine galleries in Hyde Park this week. the rich are different.