Jan 26, 2020

It’s easy to mock Vernon Hill but Metro put big banks on their toes

written by Lisa Eason

I am not a friend of Vernon Hill, ex-chairman of Metro Bank, but I am an admirer of his energy and ambition. I got to know him when I served as a non-executive director of his business from 2011 to 2014. Vernon and I did not always see eye to eye — indeed, we had a stand-up row at my last board meeting — but that was not why I left. I retired because I did not want to be a director of a publicly quoted bank, I was not a material shareholder and I felt that the regulatory burden on such institutions was suffocating.

Hill’s departure from the bank he co-founded might have satisfied institutional investors. Yet if he had not become involved, the venture would almost certainly never have taken off. It was his vision and salesmanship that persuaded American backers to pour at least £750m into the start-up.

His outstanding success at Commerce Bank in America meant he had big supporters willing to fund his new British bank. He built Commerce from nothing to 500 branches between 1973 and 2007, when it was sold for $8.5bn, and early investors were obviously hoping that Metro would forge a similar success. But it was not to be. Metro’s shares have fallen by about 95% in two years — a decline in equity value of £2.7bn. In that sense it has been a huge value-destruction machine.

However, Metro is also perhaps the most visible and best-known of the new challenger banks. These are a new generation of clearing banks designed to compete with the oligopoly of the high street giants, such as Barclays, Royal Bank of Scotland, Lloyds and HSBC. Mostly, our big banks have terrible reputations for customer service and have limited competition when compared to similarly sized economies. In effect, this means business and personal account holders lack choice. Metro and its rivals have forced the big boys to up their games.

It seems easy to point out the flaws in any venture — particularly in hindsight. This is what broking analysts and financial journalists do every day — especially if a business goes wrong, as Metro has. But having worked as an analyst, and written a weekly newspaper column for almost 20 years — and having also founded and developed a number of companies — I think I know which is the harder road.

Observing, commenting and critiquing can all be very worthwhile contributions to society, but I would direct readers to Teddy Roosevelt’s stirring Man in the Arena speech for perspective — the former US president put it so much more brilliantly than I ever could.

Hill entered the arena not once, but a number of times. He started Metro when he was 65, an age at which most entrepreneurs with his wealth would be retired, enjoying their riches. But Hill felt a compulsion to keep building and investing, and in some respects we should be grateful to him.

Starting, growing and fixing companies is risky, stressful and frequently unrewarding. Britain lacks bold start-ups that can help transform whole industries. And banking is so much more than just another industry. It provides the lending to fuel business and create jobs; it supplies the loans to allow people to buy their homes. Politicians and economists believed that encouraging new banks would help to revolutionise a complacent virtual cartel of long-established players.

Unfortunately, the regulators have made the task of developing new competitor banks much more difficult. RBS failed and required a taxpayer bailout of £45bn — yet no one was prosecuted for this national catastrophe. Instead, years after the horses have bolted, the system has over-reacted and enforced a considerably more onerous regulatory regime on the industry. It is a fact of life that bureaucrats live to pass more rules, and the City watchdog has stifled entrepreneurial lenders because of hopeless oversight leading up to the financial crisis — and over-compensating afterwards.

Metro Bank may well be broken up now, or even taken private. I hope it survives in an independent form. I recently had the experience of asking one of the big clearers to open a commercial bank account quickly; it said it would need several weeks. Metro did it in a few days.

Companies and the public need more banks like this — ones hungry to win and serve new customers — because the incumbents basically take their millions of account holders for granted, and that is bad for business and society.