Metro Bank Targets New Funds As Losses Peak
Metro Bank is weighing plans to take advantage of favourable stock market conditions by floating in the coming months even as some of its shareholders clamour to buy more shares privately.
In a letter to shareholders - a copy of which has been obtained by Sky News - the first new UK high street lender for more than a century said it was drawing up plans to raise fresh funding in addition to roughly £250m for which it has tapped investors since being set up four years ago.
"The bank intends to conduct a further capital raise to support the dynamic growth in lending and stores; the timing, quantum and methodology of the capital raise will be formally communicated shortly," the letter said.
People close to Metro Bank said its board had not yet decided whether to seek the new money, which would probably involve raising at least £100m, from existing shareholders or through a stock market listing. Executives from the bank are understood to have been in discussions with investment banks about its plans in recent weeks.
The circular to investors also outlined the escalating losses at Metro Bank, which lost £14.3m before tax in the three months to September and £38.6m in the year-to-date. That takes the lender's total losses since being set up to nearly £140m.
However, Vernon Hill, chairman, and Craig Donaldson, chief executive, told shareholders that the second quarter of 2013 "will therefore have marked the peak quarterly loss and that quarterly losses will now fall until the bank achieves profitability".
The losses underline the costs associated with breaking into the UK's retail banking sector at a time when Government ministers are attempting to foment new competition through a string of new policy measures, including reducing capital and liquidity requirements for new entrants.
The numbers handed to Metro Bank's investors, which are broadly in line with the bank's expectations, also demonstrate strong growth in its deposits and lending activities, with loans growing by nearly £200m during the third quarter.
Metro Bank's first branch opened in Central London in July 2010, and it now has 20 open, with aggressive expansion plans set out over the next five years.
Among the innovations it has introduced to the UK are dog-friendly and drive-through branch facilities, reflecting Mr Hill's determination to revolutionise the consumer banking experience.
According to the circular to shareholders, who include the American hedge fund tycoon Steve Cohen and the billionaire Reuben brothers, loans and advances to customers grew at an annual rate of 370% between July and September.
Metro Bank said on Tuesday that it had been the biggest beneficiary of the new seven-day current account-switching regime, with customer accounts rising from 136,000 on January 1 to 238,000 by September 30.
Mr Donaldson said that "huge numbers of customers [have been] using the new service to vote with their feet, and join us for a customer service focused banking experience", although industry analysts suggested that the total of 89,000 customers switching during the first month had been modest.
Metro Bank plans to enter the market for lending to small and medium-sized businesses (SMEs) by rebranding SME Invoice Finance, a company it bought recently, as Metro Bank Invoice Finance.
Metro Bank is chaired by Vernon Hill, who enjoyed huge commercial success with the launch of similar banking ventures in the US before encountering difficulties with regulators.
The company's directors include Luke Johnson, the restaurants entrepreneur, and Lord Flight, former chief secretary to the Treasury.
A Metro Bank spokeswoman declined to comment.