Photographer: Simon Dawson/Bloomberg

Metro Bank Parks $2.85 Billion in Bonds in U.K. Deposit Surplus

  • Lender's stock climbed in first day of conditional trading
  • Company aims to boost loan-to-deposit ratio to 80% from 69%

For all the importance Metro Bank Plc Chairman Vernon Hill places on his bank’s branch network, it’s doing more to attract depositors than borrowers.

The bank that went public on Monday, which has bigger branches than most of its rivals and stays open seven days a week, sold 84 percent of its mortgages and the majority of its invoice and asset finance agreements through brokers in 2015, according to its prospectus. Even as the amount of loans doubled, it couldn’t keep up with the absolute growth in deposits and the bank invested 2 billion pounds ($2.85 billion) in securities to counter the mismatch on its 6.1 billion-pound balance sheet.

Hill, 70, wants Metro Bank to repeat the growth of 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. He’s opened 40 branches across London and the southeast of England since 2010, with each “store” taking about 24 months to make positive contributions, helping to push the bank to a 49.2 million-pound loss last year.

Metro Bank uses “investment securities both as a source of liquidity and to generate returns from customer deposits which have not been lent to customers,” according to the prospectus published Monday. It said the bank typically invests in triple-A rated residential mortgage-backed securities, U.K. treasury bills and bonds issued by companies and financial institutions.

The bank raised 400 million pounds in a share sale on Friday and started trading on the London Stock Exchange on Monday. The stock gained 7.5 percent to 2,150 pence on the first day of conditional trading.

Fund Lending

Hill is seeking to increase lending to move his bank’s loan-to-deposit ratio of 69 percent toward 80 percent by 2020, according to the prospectus. The measure lags other small U.K. lenders, such as Virgin Money Holdings UK Plc with 107.5 percent and Shawbrook Group Plc at 104 percent. 

Metro Bank increased loans to customers to 3.5 billion pounds last year from 1.59 billion pounds. Deposits rose by 2.2 billion pounds in 2015 to 5.1 billion pounds as the company added branches.

With the branches a “key component” of the bank’s strategy, the architecture, design and branding was created by Hill’s wife, Shirley, whose firm InterArch Inc. was paid 2.3 million pounds last year for these services. While her company assigned the intellectual property rights in the U.K. to Metro Bank in 2010, it still owns them outside of Britain. The bank said its audit committee reviews the agreement with InterArch periodically and uses annual benchmarking reviews from third parties.

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