Metro Bank looks to raise £250m

 

 

By applying this philosophy, Vernon built Commerce Bank into one of the largest banks in America. He founded it in 1973 as a one-branch bank in metro Philadelphia with nine staff and £1.5 million. It grew to have 15,000 team members, 500 branches and $50 billion of assets and was purchased in July 2007 by TD Financial for $8.5 billion.

Commerce was voted the best bank in America in 2006, 2007 and 2008 by JD Power and Associates for its absolute commitment to Customers. It also produced exceptional shareholder returns.

 

Granted its licence by the FSA on 5 March 2010, the first high-street banking licence to be granted for over 150 years.

 

The first store (branch) was opened in Holborn in July 2010, with subsequent ones opening in Earl’s Court and Fulham Broadway. There are now 20 stores.

 

Metro Bank’s CEO is Craig Donaldson, who had previous roles including Managing Director of retail products at RBS, senior roles at Barclays and HBOS. Jason Oakley is the Managing Director of Commercial Banking.

 

This is the fifth bank which Vernon has started from scratch

 

The emphasis on his model centres around the care deposit base. In the US, the model consisted with 50 per cent consumer and 50 per cent commercial deposits.

 

Metro Bank actually began in 2008 when it submitted its licence, which took 18 months to get approved. When applying for the then FSA licence, a detailed business plan had to consist of models, projections, outcomes with certain situations.

 

Vernon said: “One of the biggest challenges in Britain is the IT system. There is a perception that you have to spend £100 million for an IT system, but we sourced a Fidelity-integrated patronage solution, a pay as you go solution.

 

“We contracted with a public-Swiss company, Camelot, which adapted its package and system to fit our needs in the UK. We raised £75 million in our first tranche of fundraising, at the end of 2009, which was pretty much all American money.”

 

 

Funding so far has all been through private investment and fund managers such as Fidelity, but that will change in the New Year when the Bank plans an IPO.

 

Funding rounds were conducted in 2010, with the first round attaining £75 million, and the second £50 million, with latest funding giving the bank over £250 million of backing to date.

 

Vernon said that Metro Bank will look to raise £250 million in the New Year and is debating on whether to float, but it is still unclear whether the new High Street lender will proceed with the initial public offering (IPO).

 

 

There is a full range of banking services to personal and business customers. It can take 15 minutes to open an account at a Metro store and a new customer’s card can be made at the store. There are free Magic Money Coin Counting Machines for customers and non-customers to sort and deposit or exchange for money, which is a very clever way of attracting people to open up an account on the spot.

 

Metro Bank’s latest store in Slough hosts a drive-through facility, which is the first of its kind in the UK. Vernon disclosed that there would be many more drive-throughs on the way.

 

There are even balloons and lollipops for children and pet food for dogs. Customer service is back on the map.

 

Service is further highlighted by utilising an old fashioned manager approach where all Metro Bank customers have a personal contact at each store. This is the foundation of Vernon’s lending policy and he said, “The more you know your customer, the less credit risk there is as you understand their job, their position and liabilities”.

 

Stores are also open seven days a week. 

 

 

It was reported in May this year that Metro Bank losses were up to £100 million. The losses underline the costs associated with breaking into the UK’s retail banking sector 

 

Metro Bank informed its shareholders that the FCA had reduced the level of capital required to be held by a quarter, “reflecting the increasing maturity of the bank and the quality of risk management”.

 

Responding to the reports that Metro Bank’s losses passed £100 million earlier this year, Vernon said that the losses were to be expected and were in line with the Bank’s plans when launching and creating new stores. When prompted when the Bank might go into the red Vernon said: “We’ll start making profit in 2014/15, which is dependent on our growth rate, but we’re on the right path there too.”

 

 

From an investor point of view it’s an intriguing position, especially when investors in Commerce Bank saw a 470 times increase on their initial investment when it sold, producing a 30-year, 23 per cent annual shareholder return.

 

So, if one had invested £10,000 in Commerce Bank from its launch in 1973, they would have seen their investment grow in value to $4.7 milllion in 2007.

 

 

Metro Bank increased its account holders by 50 per cent in the first half of 2013 for a total of 200,000 customer accounts, including 15,000 business accounts. 

 

Customer deposits grew at an annual rate of 210 per cent to almost £700 million over 12 months to March 31st this year.

 

Loans and advances to customers grew at an annual rate of 297 per cent in the year to March 31, a shareholder circular obtained by Sky News showed. Over the same period customer deposits grew at an annual rate of 210 per cent to almost £700 million over the same period.

 

By the end of 2013, there will 1,000 team members, not employees.

 

In August 2013, Metro Bank acquired SME Invoice Finance, a provider of alternative forms of finance and working capital to small and medium-sized companies (SMEs). The acquisition has diversified the Bank’s business model and funding at a time when its core banking business is demonstrating rapid growth.

 

 

The aim is to have five more branches before the end of the year and 200 Greater London stores by 2020, which equates to a store every month. The plan is to have at least 5,000 team members and £25 billion in deposits. Vernon wants to: “Apple-ize the banking world”.

 

The UK has always been seen as a tough market to crack because the big banks have a huge market share and people rarely if ever move accounts, but Vernon told B&C that they will move if they have a good experience with Metro Bank: “We have an already established and proven unique customer model”.