Boss States Case for New Lenders as Metro Bank Takes Off

24 January 2014- The Times

Metro Bank’s founder Vernon Hill won the first new banking licence issued after the financial crisis.  Metro Bank ramped up lending and narrowed its losses last year, prompting the head of the challenger bank to say that Labour’s policy to break up big lenders was unnecessary.

Vernon Hill, who set up Metro four years ago with a single branch in Holborn, Central London, said: “Change comes from new entrants and innovators, not from shuffling the deck.” Loans at Metro Bank increased by 348 per cent to £755 million in the 12 months to December 31 while deposits rose to £1.3 billion, up 128 per cent. Its pre-tax loss was £13.5 million in the three months to December 31, almost unchanged on the same period in 2012.

Until last year, Metro had kept a brake on loans, saying that it wanted to build a strong reserve of deposits first. The strategy prompted sceptics to say that the start-up bank would find it hard to break into profit because it is impossible to generate a return on deposits with interest rates are so low. Metro had planned to float in London this year but instead raised nearly £390 million from a private placing to existing and new investors in the past few weeks, bringing the total capital investment it has attracted to £641 million. This means that Metro probably will not seek a stock market listing until 2016, Mr Hill said.

The latest funding has boosted Metro’s key measures of financial strength to levels well above those of the UK’s big banks. Metro’s leverage ratio — which measures loans compared to capital — stands at 25 per cent, compared with the 3 per cent required by the Prudential Regulation Authority, and its Tier 1 capital ratio at 63 per cent.

Metro, which markets itself as different from traditional lenders because of its seven-day opening and quick account opening process, has 25 branches, which it terms “stores”, in London and the South East with a further 12 planned this year. Mr Hill won the first new banking licence after the financial crisis, with the venture backed by investors including the Reuben brothers in Britain and Richard LeFrak, the New York-based property developer.

Aldermore, a new bank started by the former Barclays executive Phillip Monks, has also recently raised more capital, with the hedge funds Toscafund and Lansdowne Partners injecting £40 million into the lender.