Business

Santander UK drafts in Osborne to advise on Metro Bank offer

Santander UK has been approached to revive its financial crisis-era role as a white knight for failing British lenders as regulators seek to secure a quickfire private sector deal to shore up Metro Bank.

Sky News has learnt that the Spanish-owned bank, NatWest Group and Lloyds Banking Group are among those approached by banking regulators this weekend about mounting a takeover of the 13 year-old high street branch network.

City sources said that Santander UK, Britain’s fifth-biggest retail bank, had engaged Robey Warshaw – the advisory firm where former chancellor George Osborne is a partner – to work on a potential offer.

There was no certainty on Sunday afternoon that any of the banks approached would make an offer for Metro Bank given the truncated timetable and the limited opportunity to conduct due diligence.

Some of the banks which have been approached are more interested in taking on the bulk of Metro Bank’s assets and liabilities – potentially without its expensive branch leases – rather than the entire company.

A number of them are thought to be unwilling to acquire the business without a government funding backstop given the implications of so-called fair value mortgage accounting rules.

Former chancellor George Osborne has told Sky News It would be a "great tragedy" to cancel the northern leg of HS2, as it is the "biggest levelling-up project the country has got".

By their calculations, Metro Bank needs hundreds of millions of pounds – and potentially more than £1bn – of new capital to make the numbers on a deal work.

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NatWest, itself still partly owned by British taxpayers, and Santander UK are both undertaking work on a potential deal, although some of that work is believed to be focused on acquiring assets if Metro Bank is placed into a resolution process by regulators.

It was unclear whether Lloyds was serious about any form of transaction.

The Financial Times reported that both HSBC and JP Morgan had “studied” bids but decided against lodging formal offers.

For Santander UK, any deal would revive memories of its role during the 2008-09 financial crisis, when it stepped in to take over both Bradford & Bingley and Alliance & Leicester when both stood on the brink of nationalisation.

Metro Bank has been running a parallel process over the weekend to thrash out a capital-raising solution with bondholders that would place it on a more sustainable financial footing.

Its board has drawn up a complex combination of plans, including asset sales and an equity-raise, to provide it with more than £500m of new funding.

However, the sharp fall in the company’s shares last week has made a share sale much harder to pull off.

Sky News revealed last week that Metro Bank had hired Morgan Stanley to explore capital-raising options weeks after it had been dealt a blow by regulators to its hopes of adopting a more capital-efficient model.

This channel subsequently revealed that Metro Bank had kicked off talks about a sale of a £3bn chunk of its mortgage book, and that Shawrook, another mid-sized lender, had had a string of takeover approaches rebuffed, including one in the second half of September.

Both Metro Bank and the Prudential Regulation Authority are keen for a deal to be struck before markets open on Monday morning.

It was unclear what the options for regulators and the bank’s board would be if a private funding solution fails to materialise before that point.

While there has so far been no sign of deposit flight, and Metro Bank has sought to reassure shareholders that it is operating in accordance with its minimum capital requirements, the absence of a funding solution has significant risks attached to it, banking experts believe.

The so-called challenger bank endured a torrid week, with its share price crashing nearly 30% on Thursday in the wake of a Sky News report that it is working with investment bankers on asset disposals, the sale of new shares and the refinancing of a £350m bond due next year.

On Friday, the stock rallied 20% to close at 45.25p, giving it a market capitalisation of less than £80m.

Metro Bank is being advised by Morgan Stanley, Moelis and Royal Bank of Canada.

At one point in 2018, the lender – which promised to revolutionise retail banking when it opened its first branch in London in 2010 – had a market capitalisation of £3.5bn.

Metro Bank became the first new lender to open on Britain’s high streets in over 100 years when it launched in 2010, soon after the last financial crisis.

It has 2.7 million customer accounts, making it one of the ten largest banks in Britain, and offers current accounts, business accounts, personal loans and insurance products.

The company employs about 4,000 people, operating from about 75 branches across the country.

Rumours have circulated for years about its finances.

In 2019, customers formed sizeable queues at some of its branches after suggestions circulated on social media that it was in financial distress.

Days later, it unveiled a £350m share placing in a move designed to allay such concerns.

Metro Bank has had a chequered history with City regulators, despite its relatively brief existence.

Last December, it was fined £10m by the Financial Conduct Authority for publishing incorrect information to investors, while the PRA slapped it with a £5.4m penalty for similar infringements a year earlier.

The lender was founded in 2009 by Anthony Thompson, a financial services entrepreneur, and Vernon Hill, an American who eventually left in controversial circumstances in 2019.

Metro Bank has been forced to sell assets in the past, announcing a deal in December 2020 to sell a portfolio of owner-occupied residential mortgages to NatWest Group for up to £3.1bn.

Lloyds, NatWest and Santander UK declined to comment, while Metro Bank did not respond to enquiries on Sunday afternoon.

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