Metro’s story tells us markets are still fearful of a banking crash

Market sentiment around the possibility of failures in the banking world remains as febrile as ever. Or so we might judge from coverage of Metro Bank – which reports suggested might have been edging towards collapse before finding a new owner over the weekend.

Metro was the brashest of the ‘challenger banks’ that sprouted after the 2008 financial crisis and the only one that aimed to build an all-new network of 200 branches. Its American founder, Vernon Hill – whose other interests included a chain of Burger King outlets – declared an urge to ‘make banking fun’ when the first Metro opened in Holborn in 2010, offering free lollipops and dog biscuits. For some observers, it looked too gimmicky to survive.

To have done so, having attracted 2.7 million customers in 76 branches despite a disastrous ‘accounting error’ in 2019, a change of leadership and the impact of Covid, is no small achievement. But it came with crippling cost ratios and a chronically weak balance sheet. Metro’s shares, once traded at £40, plunged to 35p last week as investors started to panic. A fire-sale of mortgage assets and a run on deposits might have followed if the Bank of England had not indicated it was urgently seeking a buyer for the whole bank, with Santander in the frame.

But that development was forestalled by a £325 million capital injection and a £600 million refinancing that forced bondholders to take losses but left a Colombian financier, Jaime Gilinski Bacal – a specialist in acquiring cheap bank assets and turning them to profit, we’re told – as controlling shareholder.

Bacal says he’s committed to ‘physical and digital banking underpinned by a focus on exceptional customer service’. But cost cuts loom and Metro’s business model still looks unstable.