Dogs still rule at Metro Bank as it eyes profitability
Think of us as a retailer, Metro Bank founder, Vernon Hill tells Billy Bambrough
Metro Bank founder and chairman Vernon Hill seems to be having as much fun at the opening of the bank’s 43rd branch as he did at the first one six years ago.
The first new lender to appear on the British high street in over 100 years when it was granted a licence in 2010, Metro Bank is now six years old. It has confounded critics with a successful market float earlier this year and remains on track to swing into profit.
On Wednesday, it will post the results of its latest quarter, having previously guided that it will record its first profitable quarter in the second half of this year.
The bank still likes to make a literal song and dance about its branch openings – which it calls stores – with employees turning the street into a party.
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Dogs were everywhere at the opening of the new Wimbledon branch last Friday, part of Hill’s belief that if your dog likes going to the bank, then you will too. Hill, in the middle of the festivities, chats with his new customers – he calls them fans – and if he was able to give out free banking samples, it looks like he would be.
“Our model is closer to a retailer than what banks traditionally look like in the UK. That hasn’t changed since we opened our first store in Holborn,” says Hill.
The bank’s investors are 90 per cent American. Before its flotation in March, it raised more than £1bn in private equity cash in six separate tranches.
“This tells you Americans love to invest in growth companies. You should think of Metro Bank as a billion pound investment in changing British banking. Profitability is only part of the story.”
Despite plans for growth not going quite as expected – Hill is far behind his original expectations of having over 200 branches around greater London by 2020 – this hasn’t held the bank back.
For its last quarter Metro Bank reported revenue of £46.3m, an increase of 63 per cent compared with the year before and an increase of 23 per cent on its previous quarter.
However, its loan-to-deposit ratio, a key metric for retail bank health, remains far under what is considered the norm for UK banks, at 70 per cent.
“Metro Bank is never going to go above 80 per cent. A lower loan-to-deposit ratio is not a problem.
“Running a bank with a ratio of 90 per cent plus is an inherently unsafe way to run a bank. If you look at us as a retailer, instead of a bank, all the numbers make sense.”
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Ahead of the 2008 financial crisis many UK high street banks were running loan-to-deposit ratios far above 100 per cent, and for many the ratio is closer to 100 per cent than Hill would be comfortable with, though critics of the bank claim it will be harder to turn a profit without lending more.
It would appear investors are not too fussed, however, with the bank’s share price up almost 30 per cent since it listed in March.
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Relatively high lending ratios is not Hill’s only criticism of the UK big five banks.
“British banks treat commercial customers worse than retail consumers,” he says.
Hill thinks this is part of the reason big banks are unlikely to look the same in the next five years or so.
“I personally don’t think the big five UK banks will survive in this form in the next five or 10 years. The regulator is on the road to breaking them up with ring fencing.”
Despite Hill predicting a significant shift in the UK banking market, he’s not about to begin any new ventures.
“I’m too busy,” he says.