The prospect of a possible takeover bid for Metro Bank sent shares in the beleaguered high street lender surging to their highest level in more than two years.
The stock on Monday jumped by 20½p, or 18.4 per cent, to 132¾p, a price last seen in March 2023, after it was reported at the weekend that Pollen Street Capital, the British private equity firm that part-owns Shawbrook Bank, had recently made an approach to Metro about a deal.
Both sides declined to comment and neither party issued a statement to the stock exchange.
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Yet speculation of a takeover nevertheless excited downtrodden investors in Metro, who have endured more than six years of turmoil at a lender that once promised to shake up banking.
Metro became Britain’s first new high street lender in more than a century when it opened its maiden branch 15 years ago in London. It listed on the London stock market at a £1.6 billion valuation in 2016 but was thrown into crisis in January 2019 when it admitted to an accounting blunder that meant its capital position was lower than previously thought.
This debacle, which stoked fears among its customers about its financial health, ultimately required Metro to raise £375 million from a share sale, derailed its expansion plans, forced it to agree to pay expensive interest on a crucial debt sale, and left it struggling with heavy losses. It also resulted in a £5.4 million fine from the Bank of England and a £10 million penalty from the Financial Conduct Authority.
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Dan Frumkin was brought in as chief executive to revive the lender but his turnaround was dealt a blow in September 2023 when fresh fears surfaced about its financial strength. Insolvency was only averted the following month after Metro clinched a last-minute £925 million rescue deal that handed control of the lender to Jaime Gilinski, a Colombian billionaire who has made a fortune turning around banks in Latin America.
His Spaldy Investments vehicle owns about 53 per cent of Metro, meaning a successful bidder would need to win him over to clinch a deal.
Pollen Street, which is led by Lindsey McMurray, has jointly owned the specialist lender Shawbrook with BC Partners, another buyout firm, since 2017. The pair have explored a sale or listing of Shawbrook in recent years, as well as deals to combine it with another bank.
Shawbrook approached Metro about a deal during its 2023 crisis and has also recently been linked to a tie-up with Starling, a digital bank. A takeover of Metro by Pollen Street could pave the way for a merger with Shawbrook, a deal that has “commercial logic”, according to analysts at Keefe, Bruyette & Woods, a stockbroker.
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“Shawbrook is delivering strong commercial loan growth … but has relatively expensive funding,” they told clients on Monday. “Metro has ambitious plans to grow commercial lending that have yet to gather momentum, but has cheap current account funding.”
Given where Metro shares now trade, if a takeover offer was made “the Gilinski family face a sizeable gain, having bought at 30p a share”, the analysts noted.
Metro stock has rallied over the past year after an overhaul by Frumkin — which has involved heavy job losses — has borne fruit. It now has 75 branches and about 3,000 employees.
Near-death experience followed Metro’s lofty promise
When Metro Bank received authorisation from City regulators to open on the high street 15 years ago, Anthony Thomson, its co-founder and then chairman, hailed its entry into the market as a “new era of banking”. Yet the lender has failed to live up to this lofty promise.
Two financial crises at Metro in the past six years have curtailed its ambitions and left the lender battling to return to profit. While news of Pollen Street’s takeover approach pushed Metro’s shares up past 18 per cent on Monday, that still only values the bank at £873 million, significantly less than the £1.6 billion price-tag put on the lender by its initial public offering in 2016.
It was meant to be different. Metro wanted to disrupt the industry and its key selling point was a focus on customer service. Unlike its established rivals that were closing branches in the face of the rising popularity of internet banking, Metro built out a high street network. Its branches were also open seven days a week, another feature that differentiated Metro from its rivals.
However, its centrepiece seven-day opening policy was axed last year as part of a turnaround by Dan Frumkin, its chief executive, who is trying to revive the lender after its near-death experience less than two years ago and after a damaging accounting error disclosed early in 2019. This painful restructuring involved nearly 1,500 job losses in 2024, while ambitious branch opening plans were scaled back after it first ran into trouble in January 2019.
Metro said in a first-quarter trading update last month that it was profitable in the three months to the end of March on both a statutory and underlying basis.
Yet it suffered a £212.2 million annual statutory pre-tax loss in 2024 and its £30.5 million profit in 2023 was its first since 2018. Losses on a pre-tax basis amounted to £70.7 million in 2022, £245.1 million in 2021, £311.4 million in 2020 and £130.8 million in 2019.
There have been corporate governance questions, too, concerning Vernon Hill, the American entrepreneur who co-founded Metro with Thomson and succeeded him as chairman at the start of 2013. Investor concerns revolved around payments made by Metro to an architecture firm owned by Hill’s wife Shirley. Hill eventually left in 2019, with his resignation helping to pave the way for a £350 million bond issue that was crucial for Metro’s finances.