JPMorgan Chase and HSBC studied bids for Metro Bank

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JPMorgan Chase and HSBC studied bids for Metro Bank before opting not to proceed, underlining the hurdle facing the UK challenger bank as it seeks to shore up its balance sheet.

The two banking heavyweights decided on Saturday night not to pursue a potential deal in a process that is being closely monitored by the Bank of England, according to people familiar with their deliberations.

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

Consultancy EY is running the bidding process for Metro, according to multiple people with knowledge of the situation. Metro is hoping to finalise a deal that would secure it new funds before the stock market opens on Monday.

The developments come after a turbulent week for Metro, whose share price tumbled after the Financial Times reported this week that it had approached investors for as much as £00mn.

The bank confirmed on Thursday that it was considering a range of options, including a combination of equity and debt issuance, as well as refinancing and asset sales.

JPMorgan and HSBC were both deterred by the extra capital a buyer would have to put in, according to people familiar with the matter. Leasing costs tied to Metro’s branch network were also unappealing for HSBC, one of the people said.

Founded in 2010 with the aim of disrupting the established order in UK retail banking, Metro has struggled since an accounting scandal in 2019. Its share price has been under more pressure since last month when UK regulators did not approve a request that would have lowered the capital requirements of its mortgage book and boosted its profitability.

A group of Metro’s bondholders have separately proposed a £600mn capital injection to refinance the high street lender.

The PRA is keen that any bids would be for the whole bank, rather than parts of the business, according to three people familiar with the approaches. According to its most recent set of financial accounts, Metro has 76 branches, 2.8mn customers and assets of £21.7bn.

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 floated in 2016, 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.

Potential acquirers are watching closely to see whether there is any political or regulatory intervention that would improve the terms of the deal.

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

JPMorgan played the role of white knight in the US earlier this year when it took over ailing lender First Republic amid a liquidity crisis for smaller US banks. Taking over Metro would force JPMorgan to separate its retail and investment banking arm under Britain’s ringfencing regime, something the bank has sought to avoid by limiting the size of its retail bank in the UK.

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 Metro 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, HSBC, Metro Bank, EY, the PRA and the Financial Conduct Authority all declined to comment.

Additional reporting by Owen Walker and Siddharth Venkataramakrishnan in London