In early 2008, inside the Seashell fish and chip shop in Marylebone, west London, Anthony Thomson was about to make a deal.
Sitting with the American billionaire Vernon Hill over cod and chips, he revealed plans to import the tycoon’s template for a US-style, consumer-focused bank to the UK. Hill gave Thomson his blessing, and ultimately, a chunk of his money, joining him as co-founder.
“He said, ‘Do you want to partner? I’ve got the model. I’ve got the money,’” Thomson recalled. By 2010, the pair had launched Metro Bank: the UK’s first new high street bank in more than a century.
Its branch network – known for extravagant launch parties, seven-day openings, and dog-friendly branches – attracted millions of customers and optimistic investors, who helped push its market value to a peak of £3.5bn by 2018.
But the party did not last. Not only did Metro fail to capitalise on the digital banking boom – causing tensions that led to Thomson’s exit – but it faced an accounting error that put it on the wrong side of UK regulators. The saga wiped out its share price, led to Hill’s resignation as chair, and dashed hopes for more lenient capital rules that could help it compete with larger rivals.
Its failure to regain regulators’ trust pushed it into the arms of another billionaire – the Colombian businessman Jaime Gilinski Bacal – who is helping steer a turnaround plan, with further details expected alongside annual results on 13 March.
“I’m still very proud of what we created,” Thomson said. “When I’m in London and I walk past a Metro Bank, I still feel really good about it – and very sorry, very sad, to see what it’s come to.”
Metro Bank’s story, however, was touched by controversy from the start. In the dull but dependable world of retail banking, it is a 14-year rollercoaster of ups and downs that may surprise passersby peering through the window of one of its cavernous blue-and-red-themed branches.
Hill’s decision to launch a bank outside US borders was not the result of pure ambition. In summer 2007, the flamboyant businessman – who often carried around his yorkshire terrier, Sir Duffy, and went golfing with Donald Trump – was ousted as the boss of Commerce Bank: the Metro Bank precursor he founded 34 years earlier.
US federal regulators were concerned over property deals with Hill and his family, as well as multimillion-dollar design contracts with InterArch. InterArch was notably owned by Hill’s wife, Shirley Hill, who lived with her husband in a 45,000-sq ft mansion near Philadelphia that nearly rivalled theWhite House in size.
But Hill, who City analysts have described as stubborn, arrogant and abrasive, was not deterred. Plans to import the Commerce Bank model – “lock stock and barrel”, in Thomson’s words – to the UK, meant Hill paid a further £21m to his wife between 2010 and 2018 to design Metro Bank’s trademark branches, replete with imported Italian marble and Canadian wood.
While Thomson says Metro could not have succeeded without Shirley’s help, it led shareholder proxies and UK fund managers to say it amounted to a conflict of interest and warranted a vote against Hill’s re-election, which he ultimately survived.
However, Ed Firth, a bank analyst at KBW, says the debacle was ultimately “immaterial”, particularly in light of problems to come.
Despite the emergence of digital rivals including Monzo, Starling, Revolut, and Thomson’s new venture, Atom Bank, Metro made a £1.6bn stock market debut to much fanfare in 2016. The share price doubled within two years, reaching a valuation of £3.5bn by March 2018, shortly after declaring its first annual profit.
Backed by high-profile investors including the British billionaires the Reuben brothers, and US hedge fund manager Steven Cohen, Hill went on a spending spree. Within months he had shelled out £523m for a buy-to-let mortgage book from the US private-equity outfit Cerberus and tapped shareholders for £300m to fund rapid expansion plans.
But in January 2019, everything changed. Metro experienced the biggest single-day collapse in a UK bank’s share price since 2008, after it revealed the devastating accounting mistake. It had miscalculated the proportion of risky loans on its balance sheet, meaning Metro breached Bank of England rules that required banks to hold enough capital to cover potential losses.
“Ultimately, that was the beginning of everything – the beginning of the end,” Firth said. “If you don’t trust the bank accounts, it’s a disaster … Second, if the regulator doesn’t have trust in the accounts, your problem is magnified by 10. And the third problem is: you just don’t have enough capital any more, which, for a business reliant on growth, is catastrophic.”
The misstep prompted an investigation by UK regulators, which fined the bank, while bosses struggled to quell panic. The incident spooked business customers, who pulled £235m in deposits, and rumours over its financial footing had sparked fears of a bank run, as account holders queued to withdraw cash and empty safety deposit boxes.
Hill was forced to go cap-in-hand to investors in May to raise more capital. It delivered £375m, and announced a big investor: Bacal, who would later install his daughter, Dorita, on the board.
But big investors, including Cohen, were soon selling their stakes, and by September, Metro was forced to pull the plug on a poorly subscribed bond sale that signalled an embarrassing snub by investors.
Three months later, Hill and his chief executive, Craig Donaldson, were out the door, as the remaining investors were left nursing a 90% plunge in Metro shares in 2019.
Hill returned to his sprawling Philadelphia villa, and by the time the lender announced a £130m annual loss the following February, Metro’s new bosses were declaring plans to cut costs and significantly scale back their expansion.
The US private-equity firm Carlyle circled the company, but Metro’s new boss, Dan Frumkin, saw off takeover talks and charged ahead with turnaround plans. Frumkin – best known for helping restructure Northern Rock after the 2007-08 financial crisis – was holding out all hope that regulators would loosen Metro’s capital rules, despite the 2019 accounting debacle.
By allowing Metro to use its own internal models to assess risks, he argued, the lender would be better equipped to compete with rivals such as Barclays, NatWest and HSBC. But the Bank of England rejected its request in September 2023, scuppering Metro’s plans and leaving it in need of a fresh pot of cash if it hoped to continue with any meaningful growth.
Panic over whether it could find anyone willing to take yet another punt led to a week-long crisis in October. Customers again started to pull cash, private-equity firms circled, and the Bank of England prepared for the worst, sounding out major lenders including NatWest and JP Morgan over whether they would consider an emergency takeover. A potential break-up and wind-down was also on the table.
Amid the panic, Metro’s Colombian investor – who built a name for himself flipping the assets of struggling lenders in Latin America – saw an opportunity. After weekend crunch talks, Metro clinched a last-minute deal that led to Bacal scooping up a 53% controlling stake for just £100m, providing cornerstone investment for a larger £925m rescue package.
Bacal’s rescue came with conditions, including a leadership cleanout and his own appointment to the board. With his daughter already installed, and the option to appoint another person to the potentially nine-member board, Bacal’s influence appeared destined to grow.
And his turnaround plans are already under way. Tied to property leases for its expensive high street branches, it is cutting costs by slashing 800 of its 4,000 staff, reviewing its seven-days-a-week branch model and ploughing more cash into automation.
But Firth – one of the few remaining analysts covering Metro now that only 47% of the shares are trading on the open market – warns there may come a point where Bacal makes decisions that are not necessarily in the best interests of other investors.
“That’s why, as a minority shareholder, I think you have to reflect on that before buying the stock in the open market. But we’ve had personalities dominating banks across Europe for many years,” he said.
“And at least he put the money in,” Firth added. “Maybe if Fred Goodwin put his own money towards 50% of Royal Bank of Scotland, he might have been a little bit more careful with some of his lending.”
Metro said: “Banking is fundamentally a people business, and over the years Metro Bank has proved there is a place for a targeted branch model that combines stores and digital channels with exceptional customer service.
“The capital package secured in October last year will allow Metro Bank to accelerate its growth plans and deliver sustainable profitable returns as we strive to be the No 1 community bank with customer service at the heart of everything we do.”
