Metro rescue puts underdogs in spotlight

Good call: A Metro Bank branch in London. The lender’s refinancing package is expected to see its shareholders being heavily diluted and some bondholders taking a haircut, but markets still welcome the deal. — Reuters

LONDON: When Vernon Hill launched Metro Bank in 2010, his Yorkshire terrier tucked under one arm, he vowed the upstart lender would challenge the dominance of the United Kingdom’s big banks.

But the challenger banks have struggled to shake up a market dominated by the “Big Four” of Lloyds, NatWest, HSBC and Barclays, with Metro’s eleventh-hour weekend capital injection highlighting the hurdles they face.

While Metro, which used to offer dog biscuits for customers’ pets, was the United Kingdom’s first new high street bank in more than 150 years, it was soon followed by other new entrants, such as fast-growing digital lenders Monzo and Starling Bank.

Although Metro’s refinancing package will see its shareholders heavily diluted and some bondholders take a haircut, markets welcomed the deal, with the bank’s battered shares gaining 11% on Monday and climbing further on Tuesday.

“Maybe it’s just the least worst outcome now and a bitter pill that just needs to be necked,” said John Cronin, banking analyst at Goodbody.

Creditors also appear in favour of the deal, with support secured just shy of the 75% threshold needed as of Monday, two sources familiar with the situation said.

Bondholders include Caius Capital, Kite Lake and Varde Partners, another source said. All three declined to comment. Metro declined to comment on Tuesday.

The fundraising package will also hand Metro’s biggest shareholder, Colombian billionaire Jaime Gilinski, a controlling stake in the bank. Gilinski, whose daughter Dorita is on Metro’s board, will inject £102mil to take a 53% stake.

The engineer and Harvard graduate, who is Colombia’s fourth richest man with a fortune of US$5bil, according to Forbes – has further ambitions.

A source with knowledge of the matter said Gilinski planned to acquire further UK banking assets over time and was monitoring other opportunities, building on his experiences from buying a string of banks in Latin America.

UK regulators and lawmakers have long wanted the challengers to take on the bigger banks, but progress has been slow as they have largely failed to achieve the scale needed.

While some have made a dent in the current account market, with Monzo for instance amassing 8.4 million customers, few have entered or made real headway in key markets such as mortgage lending.

The United Kingdom’s 10 largest mortgage lenders still accounted for 83% of the market at the end of last year, data published by banking trade body UK Finance showed.

Monzo declined to comment.

A Starling spokesperson said the lender was making inroads into the big banks’ market dominance.

“We’ve demonstrated that we can scale,” the spokesperson said. “We reported profits of £195mil for the year to the end of March 2023, the second full consecutive year of profitability.”

Some challengers have criticised the United Kingdom’s capital rules for hampering competition, leading the Bank of England to pledge to introduce a “strong and simple” capital regime for smaller banks, although the reform has yet to be implemented.

Two sources close to Metro said the capital rules had been a key contributing factor to its problems, which began in the years after it floated on the London Stock Exchange in 2016.

“There has to be a level playing field,” one added.

After failing to obtain key capital relief and faced with looming debt maturities, Metro last month enlisted Morgan Stanley to advise it, teh sources added.

The Bank of England then stepped in to find potential buyers for Metro in case refinancing talks failed, which could have been more painful for investors, the people added.

The United Kingdom’s principal banking regulator, the Prudential Regulation Authority or PRA, declined to comment. — Reuters

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