It is never easy for a founder to let go of the business they created.
Many entrepreneurs liken companies they have founded to their children and, while the metaphor may sound glib, it is often appropriate. People who found companies invariably spend more time running them than they do with their families.
For such people, parting company is harder still when they have not had control over the timing.
That looks to have been the case with today’s news that Vernon Hill will be stepping down as chairman of Metro Bank by the end of the year.
After all, it was only in July this year that Mr Hill was insisting he would “probably die” in the role.
That remark is understood to have gone down badly with shareholders and he was subsequently obliged to insist to the Financial Times that the comment was “a little bit of a jest”.
Just days later, the challenger bank announced it “will start the process of recruiting an independent, non-executive chair”, a pledge calculated to keep investors onside – but which was tarnished by Metro’s insistence that Mr Hill would be remaining on the board as “non-executive director, founder and president”.
The news, which came on the same day that Metro Bank admitted that its customers had pulled £2bn worth of deposits during the first six months of the year, sent the shares to a new all-time low.
So today’s announcement is a crucial step towards regaining the support of shareholders.
As John Cronin, UK financials analyst at the stockbroker Goodbody, put it: “We suspect that potential replacement candidates would be reluctant to take on the role with Hill still on the board.
“It is notable that Hill did not comment for the purposes of the announcement and we suspect that a majority of the board members wanted to see this happen.
“While Hill’s vision has been constructive in the context of securing equity backing for the Metro Bank story, the ever-increasing challenges that the bank is facing, including regulatory challenges, means that board refreshment seems necessary.”
Mr Hill’s departure comes at a critical juncture for Metro Bank. The share price had, prior to today’s news, fallen by more than 90% since the lender issued a profits warning in January related to the misclassification of some £900m worth of loans.
Adding to the pressure has been a requirement to raise a minimum of £250m by January in order to meet a rule called the minimum requirement for own funds and eligible liabilities’ (MREL). This is debt that converts into ‘loss-absorbing’ equity should a bank get into financial distress and all banks are required by regulators to issue it.
To meet this requirement, Metro Bank sought to raise £250m by issuing bonds, but the issue was pulled last week.
Not enough investors were prepared to commit money despite a promised yield of 7.5% – undoubtedly reflecting unhappiness among some investors at the proposals for Mr Hill to linger on the board.
Plans for a fundraising were revived today, this time with a higher yield of 9.5%, and, with Metro Bank looking to raise £300m, it had already received orders worth £475m by this lunchtime. The shares promptly jumped by nearly a third.
Along with the higher rate of interest, of course, it would appear that Mr Hill’s departure will have encouraged bond investors to come forward.
It must all be a bit of a comedown to the 74-year-old. He and his Yorkshire terrier, Sir Duffield, won a cult following when, in 2010, Metro Bank opened its doors to the public promising to breathe life back into branch banking.
Its branch openings were pure showbiz, with stilt-walkers, face-painting and waitresses handing out free popcorn. The branches, described as ‘stores’, indeed appeared like a breath of fresh air to British banking customers – described as ‘fans’ – more used to seeing branches closing than opening.
Each brightly-coloured branch, boasting longer opening hours than the competition, even promised to be pet-friendly and Sir Duffield – who was replaced after his death in 2015 by Sir Duffield II – became the bank’s mascot.
And Mr Hill, who began his career running Burger King restaurants, arrived in the UK with a loyal group of shareholders for whom he had made a fortune in the United States.
In 1973, aged just 27, he had set up a business called Commerce Bank with a single branch in New Jersey.
When Mr Hill left 34 years later, following a clash with regulators, the lender – now called Commerce Bancorp – had 460 branches and deposits totalling $40bn. It was sold months after his departure to Toronto Dominion Bank of Canada for $8.5bn.
At first, all went well, with Metro Bank hoovering up customers, propelling its share price to a rating that could only be regarded as stratospheric by the standards of the industry and even by those of challenger banks like Virgin Money and CYBG.
Over time, though, investors began to raise questions over the bank’s governance. There was unhappiness when it emerged that Mr Hill was being paid £10,000 each month to cover the cost of staying in London and travelling to and from the US.
There was even more when it was discovered that an architecture firm owned by Mr Hill’s wife, Shirley, was being paid £25m to design branches for the bank – ironically recalling a similar row that blew up during billionaire Mr Hill’s time at Commerce Bancorp.
Matters like this could be brushed aside when the bank was doing well. After the accounting issues were revealed earlier this year, though, they became emblematic of a bank that was not being run properly.
So news of Mr Hill’s departure has been broadly welcomed.
Ashley Hamilton Claxton, head of responsible investment at Royal London Asset Management, said: “We hope this change in leadership will help the board draw a line under the governance issues at Metro Bank and focus on restoring shareholder trust and improving financial performance.
“Pension savers, who are invested in listed companies through their workplace pensions, have suffered significantly as a result of the over 90% drop in Metro Bank’s share price since April 2018 when we first raised governance concerns, so we welcome this announcement.”
Mr Hill’s departure, however, will not resolve all of the bank’s difficulties. Its hitherto rapid growth has slowed – partly reflecting the sluggish state of the UK economy – and a fierce price war is being fought in products such as mortgages which, in recent weeks, has forced players like Tesco Bank to drop out of the market.
Moreover, there has been speculation in recent weeks that more activist investors could appear on the shareholder register, agitating for a shake-up or even a sale of the business.
The noise surrounding this bank is unlikely to die down any time soon.
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