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NatWest, Santander and Lloyds Banking Group were weighing bids for parts of Metro Bank on Sunday night, as several big lenders ruled out a full takeover of the UK challenger bank without state support.
In the absence of sweeteners from the UK government or regulators, NatWest, Santander, Lloyds, HSBC and JPMorgan Chase have ruled out a bid for all of Metro, according to people familiar with the matter.
Meanwhile, a separate attempt by existing Metro bondholders to bolster the bank’s balance sheet through a £600mn capital injection was still being discussed by the company’s board late on Sunday. Investors were confident a deal could be announced as early as Monday morning, said people briefed on the situation.
Metro, the first of a wave of challenger banks that promised to upend the established order in UK retail banking following the financial crisis, is racing to shore up its finances. Its shares fell sharply last week on the news that it had approached investors for up to £600mn to strengthen its balance sheet.
The Bank of England’s Prudential Regulation Authority, which supervises banks, contacted a number of big UK lenders to see if they had any interest in Metro, said people with knowledge of the situation.
State-backed NatWest is interested in acquiring some of Metro’s assets, rather than the whole group, said people briefed on the matter.
One of these people added that the £500mn that a buyer would probably have to inject was a deterrent, alongside Metro’s costly branch network — something that the bank has championed even as more consumers bank online.
The PRA is keen that any bids be for the whole bank, rather than parts of the business.
JPMorgan and HSBC decided on Saturday not to pursue a potential deal in a bidding process that is being run by accounting firm EY and closely monitored by the BoE, said people familiar with the matter.
JPMorgan and HSBC were both deterred by the extra capital a buyer would have to put into Metro, according to people familiar with the matter. Leasing costs tied to Metro’s network of 76 branches were also unappealing for HSBC, said one of the people.
Metro has already rejected a bid from fellow challenger bank Shawbrook, but the latter remains interested in doing a deal, said one person briefed on the matter.
NatWest, Lloyds, Santander, JPMorgan, HSBC, Metro Bank, EY, the PRA and the Financial Conduct Authority all declined to comment.
The Financial Times has previously reported that some Metro bondholders — who are represented by boutique investment bank PJT Partners — approached the company’s board on Monday last week with a proposal to provide £350mn of debt and £250mn of equity, but did not receive a response until Friday.
People with knowledge of the proposal said the working assumption from the investors was that a deal could be agreed on Sunday night, but cautioned it could still be derailed.
Metro’s share price has been under pressure since the middle of September, when UK regulators declined to approve a request that would have lowered the capital requirements of the company’s mortgage book and boosted its profitability.
The bank confirmed last week that it was considering a range of options, including a combination of equity and debt issuance, as well as refinancing and asset sales.
Metro said at the time that it “continues to be well positioned for future growth”, pointing to its underlying profits for the past three quarters.
According to its most recent set of financial accounts, Metro has 2.8mn customers and assets of £21.7bn.
Analysts at Autonomous said in a note on Friday that it was “very hard to see how the maths makes sense for any buyer absent material sweeteners”, estimating that Metro would be short by about £500mn in equity if it were sold because any buyer would have to revalue assets.
Additional reporting by Michael O’Dwyer and Siddharth Venkataramakrishnan in London
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