Vernon Hill moved to London from the U.S. to create the “Apple of banking.” He has gathered some very wealthy American backers along the way.
Ken Moelis, Richard LeFrak, Steven A. Cohen and Bruce Toll are some of the property and finance tycoons Hill said have invested in Metro Bank, which aims to shake up U.K. banking with branches open seven days a week, free coin counting and dog treats.
Hill, 69, wants the five-year-old lender he chairs to become bigger than Commerce Bancorp Inc., the New Jersey-based firm he started with one outlet in 1973 that was sold to Toronto-Dominion Bank 34 years later for $8.5 billion. To pursue his vision, he’s taking the same approach he did in the U.S. -- including hiring his wife to design the branches, a practice he was ordered to stop Stateside.
“Everything we did in America works better here,” Hill said in an interview last month in his office above Metro Bank’s first branch in Holborn, halfway between London’s financial district and West End shopping area. “The Brits, with good reason, hate their banks more than the Americans do.”
Hill is expanding in some of the world’s most expensive real estate while the U.K.’s four biggest banks close branches across the country and dole out compensation for selling insurance to people who didn’t need it. Privately held Metro Bank more than doubled deposits in 2014 to 2.9 billion pounds ($4.3 billion) from a year earlier, though it’s still unprofitable, losing 38.8 million pounds last year.
Hill says Metro Bank aims to make its first profit next year. Revenue grew to 31.5 million pounds in 2013 from 11 million pounds a year earlier, according to the most recent figures available from the U.K.’s Companies House.
The first new U.K. consumer bank in more than a century has 33 branches, all in and around London, compared with more than 2,000 for market leader Lloyds Banking Group Plc.
Metro branches are bigger than many rivals, with high ceilings. They have water bowls due to Hill’s love of pets, which extends to helping London’s Battersea Dogs and Cats Home and chairing insurer Petplan USA. (His Yorkshire terrier, Sir Duffield, died in March after a tenure as “Chief Canine Officer” opening branches and running a Twitter account. Hill now has another terrier with the same bloodline, Sir Duffield II.)
Hill says he owns about 9 percent of Metro Bank. He said the lender has raised about 615 million pounds in four private fundraisings, and about 95 percent of the bank’s shareholders are wealthy Americans and U.S. institutional money managers, including Cohen, the billionaire investor, and Fidelity Management & Research Co. He says no shareholder is allowed to own more than 10 percent of the company.
Willett Advisors LLC, which manages money for Michael Bloomberg, the founder of Bloomberg LP, the parent of Bloomberg News, has a minority, passive interest in Metro Bank.
Robert and Bruce Toll, who founded homebuilders Toll Brothers Inc., own about 2 million of Metro Bank’s 60.2 million shares, and Boston-based investment-management firm Wellington Management Co. also owns a stake, a Nov. 6 filing shows. The bank’s most recent fundraising was in January 2014, via Bank of America Merrill Lynch and Royal Bank of Canada.
“He’s done it before and we thought he could do it again,” Bruce Toll said by phone. “My brother and I have complete faith in Vernon Hill. London and England are underbanked in our opinion.”
Of Ken Moelis, the Wall Street banker and fellow Wharton School grad who now runs his own advisory firm, Hill said, “We’re friends. Ken started his business about the same time I started Metro Bank, and he bought a relatively small share.”
Chris Shumway, a former Tiger cub protege of hedge-fund manager Julian Robertson, also has a stake, said a person with knowledge of the investment, who asked not to be identified because the matter is private. Shumway is the founder and managing partner of Shumway Capital, which makes private, seed, strategic incubation, venture capital and public investments.
Spokespeople for Moelis, Cohen and Shumway declined to comment.
Real-estate billionaire Richard LeFrak, who said he invested $25 million in Metro in 2010, a 10 percent stake at the time that was diluted by subsequent fundraisings, said he wished he had invested in Commerce Bank too.
“He was successful with Commerce, although he was controversial, but the original investors in the bank did very, very well,” LeFrak said. “He’s the kind of guy who has the moxie to pull these things off. He is non-conventional.”
Most U.K. bank branches “look like off-track betting parlors,” LeFrak said.
Metro is among a group of so-called challenger banks taking on Lloyds, HSBC Holdings Plc, Barclays Plc and Royal Bank of Scotland Group Plc, which control as much as 80 percent of the British market.
While Metro Bank’s accounts are free of charge, the industry standard in Britain, the lender doesn’t offer high-interest checking accounts used by rivals such as TSB Banking Group Plc to attract deposits. Instead, Hill says unique services are helping attract more deposits per branch than he originally anticipated. Customers can open accounts within 15 minutes, access safe deposit boxes seven days a week, 362 days a year, and coin-counting is free.
“You could call us the extreme example of service and convenience,” said Hill, wearing a red Metro Bank badge on his double-breasted, dark blue pinstriped suit. “Nobody buys an iPhone 6 because it’s cheap. They’re buying it for the whole Apple experience. That’s pretty much what our model is.”
A former real-estate developer and owner of Burger King outlets, Hill opened his first branch of Commerce Bank at the age of 26. He eventually built the lender into New Jersey’s largest, with more than 400 branches.
Hill points to a framed certificate of Forbes Magazine’s 20-20 Club for 2007, the year Commerce Bank was sold to TD, ranking CEOs with a tenure of at least 20 years who returned at least 20 percent per annum to shareholders. “Who the hell is this guy?” he says jokingly, pointing to Warren Buffett, one notch above him.
He was replaced as Commerce Bank’s chief executive, making the bank an acquisition target, in June 2007 after regulators forced Commerce to stop doing business with firms controlled by his family. Commerce Bank had previously disclosed in regulatory filings that it paid a firm owned by Hill’s wife, Shirley, $50 million over a 10-year period to design and furnish branches. Commerce Bank also leased land and space from partnerships that included Hill and a Hill family trust.
At the time regulators had balked at approving new branches while the probe was under way, and Hill decided he had become a liability to the company after talks with the bank’s directors, three people familiar with the matter said at the time. The Office of the Comptroller of the Currency said at the time that it hadn’t required his resignation.
Hill agreed with the OCC in 2008 to report all his future transactions to the board and audit committee of institutions involved, and get outside fairness opinions. The cease and desist order says Hill “neither admits nor denies” he “engaged in unsafe and unsound practices and breaches of fiduciary duties by failing to comply with sound corporate governance principles in connection with real estate purchases, leases and joint real estate development transactions involving the bank which resulted in financial gain.”
Commerce Bank had earlier weathered a federal inquiry into municipal corruption in Philadelphia. Two Commerce Bank executives were sentenced to prison terms in 2005 for conspiring with the city’s treasurer to trade banking business for loans and other favors. They pleaded not guilty and lost appeals of their convictions. Neither Commerce itself nor Hill were charged.
After the executives were charged, Commerce quit municipal bond underwriting and hired a law firm to review policies for dealing with public officials, and Hill said in a filing that the bank intended to have “industry-leading” policy on such dealings.
In the U.K., Hill has hired his wife’s company in a similar arrangement to the old one at Commerce Bank. InterArch, a firm she owns, is paid by Metro Bank for services including architectural design, construction management and signage, according to a company filing. A message left for Shirley Hill at InterArch’s New Jersey office wasn’t returned.
“She and her team are the brand creators, the building creators,” Hill said to Bloomberg.
Metro Bank’s audit committee has assessed whether InterArch’s service is value for money and not less advantageous to the company than any other arrangements, according to 2013 documents filed at Companies House.
U.K. regulators would have denied his banking license if there had been wrongdoing at Commerce Bank, Hill said, adding that neither investors nor British regulators raised concerns about the arrangement with his wife.
“I left, the bank got sold, I was never accused of anything,” Hill said. “I left because I got tired of being the CEO, to tell you the truth.”
Metro Bank plans ten more branches for 2015, adding 500 staff to its 1,500 strong workforce. The company had planned 200 branches by 2020, though Hill said he’s cut that target to 150 because the value of deposits per branch has been higher than anticipated.
In previous interviews with the British press, Hill had discussed IPO plans for 2012 and 2014. He said he’s still keen on an share sale, now in 2016, the “next time we need to raise capital.”
He wants deposits to reach at least 50 billion pounds in the longer term, which would represent about 5 percent of the market in southeastern England. He said that could garner Metro Bank a market capitalization of about 10 billion pounds.
He said he’s not seeking to use the IPO to exit his investment and said he wouldn’t consider merging Metro Bank with a competitor. TSB, the largest U.K. challenger bank, is being sold to Banco Sabadell SA for 1.7 billion pounds.
“We’re not merging with anybody,” Hill said. “Maybe when I’m dead they’ll sell my shares, but not till then.”