Private-equity fund Carlyle has become the latest group to target UK High Street lenders as it approaches Metrobank on potential acquisitions and interest rates are expected to rise.
The lender said that Metro had “worked with Carlyle” on a proposal that could keep it private, not to mention how much the acquisition group could pay.
Shares in Metro Bank surged by almost a third after it received an approach about a possible takeover by the US private-equity group Carlyle.
The market value of the challenger bank, which did not say how much Carlyle might pay if a firm offer was made, soared by as much as 40% in early trading on news of the deal, valuing the bank at more than £242m, before closing up 29%.
“Metro Bank has engaged with Carlyle in relation to its possible offer and a further announcement will be made as and when appropriate,” the company said. “In the meantime, shareholders are advised to take no action.”
US-based Carlyle is currently required to announce a firm intention to bid or leave under UK takeover rules by December 2. Metro said there was no certainty that the offer would be made.
Metro is the first new bank in a century to open a branch in the UK in 2010 and was listed on the stock market six years later. However, in 2019, a misinformation scandal on loans made it difficult for banks to meet the rules for holding loss-absorbing debt, deporting the chair and chief executive officer.
Metro’s chief executive, Dan Frumkin, who took up the top role last year, has previously worked with Carlyle. He joined from Bermuda-based Butterfield Bank, where he was part of the management team who helped to restructure the troubled lender after its acquisition by Carlyle in 2010.
The private equity group exited Butterfield via a two-stage listing on the New York Stock Exchange that completed in 2017.
Last year, Metro significantly scaled back expansion plans after reporting a loss of more than £130m caused partly by the accounting error.
The scandal prompted speculation that the bank may become a possible takeover target as its share price tumbled. Frumkin was promoted from chief transformation officer to the top role within months of joining Metro Bank as the scandal unfolded.
Bank stocks plummeted 97% from their March 2018 peak, cutting market capitalization from £ 3.5 billion to less than £ 200 million, before a 35% surge on Thursday after Carlyle’s interest was announced.
While Metro Bank’s share price is up more than 130% over the past year, to about 140p, it remains at a third of the 400p it was trading at three years ago. When the company floated on the stock market in 2016 it was valued at £1.6bn.
In July, Frumkin said attempts to revive its fortunes were “beginning to bear fruit”, with half-year pre-tax losses reducing from £240m to £139m year-on-year.
Earlier this year Carlyle, which declined to comment on the possible takeover, lost a £1.1bn bidding war for the inhaler firm Vectura to the tobacco company Philip Morris.
The private equity company has a portfolio of investments in the UK including the housing developer Beechcraft, video games producer Jagex, luxury clothing retailer END and global funds network Calastone.
In November, Carlyle exited PA Consulting after it was acquired by the professional services firm Jacob in a deal valuing the business at £1.
Carlisle’s interests could be driven in part by the potential for rising interest rates in the UK, and metro and other lenders will benefit as lending margins improve. Bank of England Retreat from a surge, however, the Monetary Policy Committee said interest rates were likely to need to rise “over the next few months.”
It also reflects widespread pressure on smaller so-called “challengeer” lenders who have long struggled to break the dominance of their larger rivals NatWest, Lloyds, HSBC and Barclays. Challengers in particular are suffering from record low interest rates and are driving talk of integration to reduce costs and scale.
They are also facing more fierce competition with online lenders.Wall Street Giants Goldman Sachs and JP Morgan Release In recent years, UK digital-only retail banks are confident that they can use new technology to achieve profitable scale without having to run an expensive branch network.
Dan Frumkin, CEO of Metro, Tried Make deposits work by reducing banks’ reliance on high-value fixed-term savings accounts and unprofitable low-risk mortgages, and lending to higher-risk mortgages and business debt that produces higher returns.
Last December, Metro announced that it had agreed to sell its £ 3 billion mortgage (about 20% of its loan books) to its larger rival NatWest and raise its capital level above key regulatory minimums. bottom.I also bought a former peer-to-peer lender RateSetter Strengthen consumer lending capacity.
Frumkin has an existing relationship with Carlyle. He was a senior manager at Butterfield, a bank headquartered in Bermuda, when a private equity group in the United States owned the company between 2010 and 2016.
The CEO has been interested in keeping banks private since he was in charge, and the two familiar with the matter are easier to turnaround outside the public market. I believed it would be.
In July, his efforts “began to bear fruit,” and the six-month results show a significant reduction in losses.
Carlyle declined to comment. The buyout group does not own any other UK bank, but last year it closed Harwood Wealth Management and agreed to purchase the fund business Calastone individually.
The Metrobank branch-focused business model has been a deterrent to suitors in the past, even if the lender’s reputation declines significantly. Its commitment to build a branch when established lenders were closing them was tested during a pandemic of digital adoption among customers.
Interest in other UK lenders has not recently led to a deal. The merger approach from co-operative banks to rival TSB would have spawned one of Britain’s largest high street banking chains, but TSB’s Spanish owner Banco Sabadell refused to trade in October.
Last year Metro Bank moved to acquire the peer-to-peer lender RateSetter in a deal worth up to £12m.
Speculation about consolidation in the banking sector has been fuelled recently by hopes that rising interest rates might boost the future prospects of challengers which have struggled to compete against the high street giants.
The Bank of England held the base rate at its historic low of 0.1%, but indicated it expects borrowing rates to rise in the coming months.
The co-operative bank itself was of interest last year from US private equity fund Cerberus, but the debate is Will be canceled During December.