Metro Bank, once a promising British lender, has faced significant challenges in recent years. From accounting scandals to a declining share price, the bank’s future has been uncertain. However, Colombian billionaire Jaime Gilinski‘s recent investment might offer a lifeline. Founded in 2010 by Vernon Hill, Metro Bank was Britain’s first new mainstream bank in over a century, the first challenger bank. The market cap collapsed to £86 million, down from £3.6 billion in 2018.
The Bank’s Vision And Its Downfall
Despite being called the first challenger bank, Metro Bank was not a fintech. The bank was founded in 2010 with a simple strategy: “Metro Bank sees its banking business as a retail operation more akin to Apple than the Bank of England,” wrote co-founder Vernon Hill. “We open stores, not branches. We recruit colleagues, not employees.” The bank has focused on changing physical branches rather than technology and the Internet.
Metro has about 2.7 million customers and 76 branches and holds about £15.5bn worth of UK customer deposits.
On Oct 5, 2023, Metro Bank’s shares plunged by 30% on October 5, 2023, after it was reported that the bank urgently sought to raise funds to shore up its finances. Last weekend, Metro was forced into an emergency balance-sheet restructuring to remain viable.
The Property Poison Pill
Without fresh funding, its ability to lend would have been at risk. The share price had fallen by almost 60% in just 60 months. Since the peak in 2018, the share has lost more than 98% of its value (see graphics left).
Analysts doubt the bank’s approach of prioritizing physical branches over digital platforms faced increasing skepticism, especially as 67% of respondents in a survey indicated a preference for online banking. The bank’s network of 76 branches sits on its balance sheet at a value of around £720 million, representing a much higher share of net assets than at any other UK bank.
It was not the first severe issue of the bank. In 2019, an accounting error revealed that Metro Bank had underestimated the capital required to back its mortgages. This disclosure led to regulatory fines, executive departures, and a significant drop in its share price.
Gilinski’s Investment
Jaime Gilinski, a Harvard MBA graduate and Colombian billionaire, increased his stake in the bank to 53% as part of a £925 million deal, awaiting regulatory approval. This investment is seen as an attempt to stabilize Metro Bank‘s balance sheet and restore stakeholder confidence.
Gilinski initially invested in Metro Bank during its 2019 accounting scandal, acquiring a 9.2% stake. Despite the bank’s challenges, Gilinski has shown unwavering faith in the potential of physical branches.
Metro Bank’s Future
As part of the recent deal, Metro Bank aims to raise £325 million, with most of the equity capital coming from Gilinski. The bank also plans to refinance £600 million worth of debt, writing down the value of some bonds by about 40% and extending their maturities. Additionally, Metro Bank is considering selling £3 billion worth of mortgages to free up capital and improve earnings.
Despite the challenges, Metro Bank‘s CEO, Daniel Frumki, remains confident in the bank’s core strategy, emphasizing the value of physical branches. The Prudential Regulation Authority, a top banking overseer in Britain, has also welcomed Metro’s recent moves.
Conclusion
Metro Bank‘s journey serves as a cautionary tale for challenger banks about the challenges of blending traditional and modern banking approaches. While the future remains uncertain, with Gilinski’s significant investment and a shift in strategy, there might be a glimmer of hope for the once-promising British lender.
