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JPMorgan and HSBC studied bid for Metro Bank

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JPMorgan Chase studied a bid for Metro Bank before opting not to proceed, as the UK challenger bank seeks to shore up its balance sheet.

The US banking group decided on Saturday night that it would not proceed with a potential deal because of the extra capital a new buyer would have to put in, according to two people familiar with its deliberations.

A deal would have been done through JPMorgan’s British digital banking unit, Chase UK, which launched two years ago and now has more than a million customers across the country.

Metro said last week that it was considering a range of options, including a combination of equity and debt issuance, as well as refinancing and asset sales. The bank recently approached investors for as much as £600mn, the Financial Times reported.

The lender, which set out a decade ago to challenge the dominant players in UK retail banking, is hoping to finalise a deal that would secure it new funds before the stock market opens on Monday.

The Bank of England’s Prudential Regulation Authority, which supervises banks, approached a number of big UK banks last week to see if they had any interest in Metro, according to three people familiar with the approaches.

The regulator is keen that any bids would be for the whole bank, rather than parts of the business, according to two people familiar with the approaches.

In the US, JPMorgan played the role of white knight earlier this year when it took over ailing lender First Republic amid a liquidity crisis for smaller US banks.

A group of Metro’s bondholders have separately proposed a £600mn capital injection to refinance the high street lender. Metro has already rejected a bid from fellow challenger bank Shawbrook, but the latter remains interested in doing a deal, according to one person close to the discussions.

Metro, which opened its first branches in 2010 and floated six years later, sought to shake up the UK banking sector with its flashy branding, its branches offering free dog biscuits and coin counters it branded Magic Money Machines. But the lender’s shares cratered in 2019 after a serious accounting error.

It is now looking to raise hundreds of millions of pounds after regulators did not approve a request that would lower the capital requirements of its mortgage book. If the talks with bondholders fail, potential acquirers are watching closely to see whether there is any political or regulatory intervention that would improve the terms of the deal.

Analysts at Autonomous said in a note on Friday that it was “very hard to see how the maths makes sense for any buyer absent material sweeteners”, estimating that the bank would be short about £500mn in equity if it were sold because any buyer would have to revalue assets.

The bank said last week that it “continues to be well positioned for future growth”, pointing to its underlying profits for the past three quarters.

JPMorgan, Metro and the PRA declined to comment.

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