Gilinski planned rescue from Billionaire Bunker


For now, the deal has put an end to speculation over the company’s future. — Reuters

LONDON: Part of the plan to save Metro Bank Holdings Plc, the United Kingdom’s best-known challenger bank, was hatched from a private island enclave near Miami, known as Billionaire Bunker.

It was there, surrounded by palm trees and turquoise water in the neighbourhood known as Indian Creek, that the Colombian financier Jaime Gilinski was holed up in recent days with members of his family as they weighed injecting more than £100mil (US$122mil) in fresh equity into the beleaguered lender.

Gilinski was game to do it, but he had some conditions.

First, the company’s bondholders had to play ball. Gilinski insisted that Metro would need to refinance a £350mil bond that would no longer count towards key capital requirements starting next year.

And second, the 65-year-old, who has quietly amassed an estimated US$4.7bil fortune in part through a series of distressed bank deals, wanted control.

The discussions over the weekend ultimately culminated with Sunday’s announcement.

Gilinski, along with other bondholders and equity shareholders, agreed to offer the challenger bank a £925mil financing package in a deal that will impose a steep haircut on investors in the firm’s riskiest bonds and give the financier a controlling stake.

For now, the deal has put an end to speculation over the company’s future.

It ultimately came together at the urging of regulators, who even went so far as to sound out potential acquirers, underscoring their desire to stave off Metro’s collapse in the aftermath of a series of high-profile bank failures earlier this year.

“We needed a bit more fuel for the tank, this is it,” chief executive officer Dan Frumkin said on a conference call with investors.

“The beauty of it is that now that we have additional capital and that we have the petrol we need, the business can really stretch its legs.”

This account is based on conversations with people familiar with the company’s operations and its discussions with investors, all of whom asked not to be named discussing non-public information.

Gilinski declined to be interviewed for this story, while a spokesperson for Metro Bank declined to comment.

Metro was launched in 2010 as the United Kingdom’s first new consumer bank in more than a century. It is known for its glitzy branches, which it prefers to call “stores” and perks like water bowls and treats for customers with dogs.

The costly approach is designed to lure in customers with service rather than pricing.

That business model attracted the likes of Gilinski, who’s long been one of the company’s top shareholders and who flew to London on Monday after spending weeks mulling injecting additional capital into the company.

Discussions between the billionaire and the company kicked off in earnest last month after the Bank of England’s Prudential Regulatory Authority (PRA) informed executives more work was needed before they’d be allowed to use a new, internal model for calculating risk-weighted assets, which would boost the firm’s capital ratios.

It was an embarrassing episode for Frumkin, who just weeks earlier had told investors publicly that regulators at the PRA remained “very responsive” to the company’s request.

Already, executives had become fixated on what the company would do when the £350mil senior bail-in bond was no longer allowed to count towards key capital requirements beginning next year.

So when regulators informed the firm they wouldn’t be approving the request to let it use the new approach, known as the advanced internal rating-based method, to assess the risk weighting on mortgage loans anytime soon, the clock started ticking.

Discussions about a new capital raise came in fits and starts. By mid-September, executives were nearing a deal with investors, including Gilinski. But those earlier talks ultimately didn’t proceed.

That sent executives back to the drawing board, hunting for more ways to shore up the balance sheet.

At the start of last week, bondholders delivered a pitch of their own for rescuing the bank, which included extending the maturity of the bank’s bail-in bond.

Last Wednesday, news leaked that Metro had hired Morgan Stanley to advise the company on potential options for improving its finances.

Oliver Hearsey, a longtime adviser to Metro who leads Royal Bank of Canada’s advisory and broking business for European financial institutions, was also involved in the discussions. The news sent shares plummeting.

At that point, the situation was still fluid. The company had yet to give the bondholders, who were represented by PJT Partners, an answer. And Gilinski had re-entered the fray too.

Metro Bank had also started discussions with rivals about offloading a £3bil portfolio of mortgages, while the consulting firm Ernst & Young was brought in by the PRA to try to find a buyer for the beleaguered lender.

Some viewed that as a canny move by the regulator to push investors to the negotiating table.

JPMorgan Chase and Co was among the firms to weigh placing a bid, though it ultimately chose not to put one forward.

Throughout the weekend, there were no outward signs of anything unusual at Metro branches. Even at the bank’s headquarters in London, things looked normal, with just the usual throng of early-evening partygoers gearing up for the night.

Discussions with bondholders and equity investors dragged on, though. For executives, just securing new equity or refinancing the £350mil bond was a non-starter.

Both needed to happen in order for the company to plug the emerging hole in its capital stack and satisfy regulators.

In any case, investors on both sides were more keen to get on board with a deal that shared the burden of the bank’s struggles.

Several of the bankers involved in the deal pulled all-nighters as they tried to hammer out the details. Regulators, though, were largely more sanguine.

One official at the Bank of England said while the central bank spent much of the weekend monitoring the discussions, officials were confident a deal would be struck and were able to go to bed early on Sunday.

Just before 10pm, a statement announcing the capital package was released. Metro was able to refinance all of its existing £600mil worth of debt as well as raise £325mil in fresh capital, including £150mil of new equity and £175mil of new bail-in bonds due in 2028.

“Metrok’s securing of £925mil financing buys time for it to focus on its new return-on-tangible-equity goal of above 9% by 2025, which, at double consensus’ above 4%, will be challenging, we believe,” said banking analyst Mar’yana Vartsaba.

“Net interest margin at 3% by 2026 looks a stretch too, and Metro outlined cost cuts to reach an efficiency ratio above 60% by 2027, showing costs remain an issue.”

The equity raise will be led by Gilinski’s Spaldy Investments, which will become the controlling shareholder of Metro Bank. — Bloomberg

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