Santander UK drafts in Osborne to advise on Metro Bank offer
Santander UK has been approached to revive its financial crisis-era role as a white knight for failing British lenders as regulators seek to secure a quickfire private sector deal to shore up Metro Bank.
Sky News has learnt that the Spanish-owned bank, NatWest Group and Lloyds Banking Group are among those approached by banking regulators this weekend about mounting a takeover of the 13 year-old high street branch network.
City sources said that Santander UK, Britain’s fifth-biggest retail bank, had engaged Robey Warshaw – the advisory firm where former chancellor George Osborne is a partner – to work on a potential offer.
There was no certainty on Sunday afternoon that any of the banks approached would make an offer for Metro Bank given the truncated timetable and the limited opportunity to conduct due diligence.
Some of the banks which have been approached are more interested in taking on the bulk of Metro Bank’s assets and liabilities – potentially without its expensive branch leases – rather than the entire company.
A number of them are thought to be unwilling to acquire the business without a government funding backstop given the implications of so-called fair value mortgage accounting rules.
By their calculations, Metro Bank needs hundreds of millions of pounds – and potentially more than £1bn – of new capital to make the numbers on a deal work.
NatWest, itself still partly owned by British taxpayers, and Santander UK are both undertaking work on a potential deal, although some of that work is believed to be focused on acquiring assets if Metro Bank is placed into a resolution process by regulators.
It was unclear whether Lloyds was serious about any form of transaction.
The Financial Times reported that both HSBC and JP Morgan had “studied” bids but decided against lodging formal offers.
For Santander UK, any deal would revive memories of its role during the 2008-09 financial crisis, when it stepped in to take over both Bradford & Bingley and Alliance & Leicester when both stood on the brink of nationalisation.
Metro Bank has been running a parallel process over the weekend to thrash out a capital-raising solution with bondholders that would place it on a more sustainable financial footing.
Its board has drawn up a complex combination of plans, including asset sales and an equity-raise, to provide it with more than £500m of new funding.
However, the sharp fall in the company’s shares last week has made a share sale much harder to pull off.
Sky News revealed last week that Metro Bank had hired Morgan Stanley to explore capital-raising options weeks after it had been dealt a blow by regulators to its hopes of adopting a more capital-efficient model.
This channel subsequently revealed that Metro Bank had kicked off talks about a sale of a £3bn chunk of its mortgage book, and that Shawrook, another mid-sized lender, had had a string of takeover approaches rebuffed, including one in the second half of September.
Both Metro Bank and the Prudential Regulation Authority are keen for a deal to be struck before markets open on Monday morning.
It was unclear what the options for regulators and the bank’s board would be if a private funding solution fails to materialise before that point.
While there has so far been no sign of deposit flight, and Metro Bank has sought to reassure shareholders that it is operating in accordance with its minimum capital requirements, the absence of a funding solution has significant risks attached to it, banking experts believe.
The so-called challenger bank endured a torrid week, with its share price crashing nearly 30% on Thursday in the wake of a Sky News report that it is working with investment bankers on asset disposals, the sale of new shares and the refinancing of a £350m bond due next year.
On Friday, the stock rallied 20% to close at 45.25p, giving it a market capitalisation of less than £80m.
Metro Bank is being advised by Morgan Stanley, Moelis and Royal Bank of Canada.
At one point in 2018, the lender – which promised to revolutionise retail banking when it opened its first branch in London in 2010 – had a market capitalisation of £3.5bn.
Metro Bank became the first new lender to open on Britain’s high streets in over 100 years when it launched in 2010, soon after the last financial crisis.
It has 2.7 million customer accounts, making it one of the ten largest banks in Britain, and offers current accounts, business accounts, personal loans and insurance products.
The company employs about 4,000 people, operating from about 75 branches across the country.
Rumours have circulated for years about its finances.
In 2019, customers formed sizeable queues at some of its branches after suggestions circulated on social media that it was in financial distress.
Days later, it unveiled a £350m share placing in a move designed to allay such concerns.
Metro Bank has had a chequered history with City regulators, despite its relatively brief existence.
Last December, it was fined £10m by the Financial Conduct Authority for publishing incorrect information to investors, while the PRA slapped it with a £5.4m penalty for similar infringements a year earlier.
The lender was founded in 2009 by Anthony Thompson, a financial services entrepreneur, and Vernon Hill, an American who eventually left in controversial circumstances in 2019.
Metro Bank has been forced to sell assets in the past, announcing a deal in December 2020 to sell a portfolio of owner-occupied residential mortgages to NatWest Group for up to £3.1bn.
Lloyds, NatWest and Santander UK declined to comment, while Metro Bank did not respond to enquiries on Sunday afternoon.
Winter fuel payments will extend to everyone over the state pension age with an income of or below £35,000 a year, Chancellor Rachel Reeves has announced.
The Treasury said the change will cost around £1.25bn in England and Wales but still save £450m if the universal allowance had been kept.
Politics Live: Chancellor makes winter fuel announcement
Dropping the benefit for all pensioners was one of the first things Labour did in government, despite it not being in their manifesto.
The change meant only those on pension credit or other benefits were eligible – a deeply unpopular move that was widely blamed on the party’s poor performance in May’s local elections.
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Ms Reeves said: “Targeting winter fuel payments was a tough decision, but the right decision because of the inheritance we had been left by the previous government.
“It is also right that we continue to means-test this payment so that it is targeted and fair, rather than restoring eligibility to everyone, including the wealthiest.
“But we have now acted to expand the eligibility of the winter fuel payment so no pensioner on a lower income will miss out.”
The government signalled its intention to widen eligibility last month, but no detail was given on what the new threshold might look like.
The lack of clarity threatened to overshadow Ms Reeves’ spending review on Wednesday, when she will set out what funding has been allocated to each government department over the next three years.
The chancellor repeatedly faced questions on winter fuel during a speech in Manchester last week to promote a £15.6bn funding settlement for local transport projects, when she said changes would be in place for this winter.
However ministers still could not give further detail, with Science Secretary Peter Kyle telling Sky News on Sunday that the new eligibility would be set out “in the run up to the autumn”.
It is still not clear how the new policy will be funded, with the costs to be accounted for in the autumn budget.
Asked by Sky News’ deputy political editor Sam Coates if the change is a signal to markets that she can’t say no to her MPs, Ms Reeves said after her spending review “markets and the public will be able to see public services living within their means”.
‘Humiliating U-turn’
Tory leader Kemi Badenoch said: “Keir Starmer has scrambled to clear up a mess of his own making. I repeatedly challenged him to reverse his callous decision to withdraw winter fuel payments, and every time Starmer arrogantly dismissed my criticisms.
“This humiliating u-turn will come as scant comfort to the pensioners forced to choose between heating and eating last winter. The prime minister should now apologise for his terrible judgement.”
The Treasury said that by setting the threshold at an income of £35,000, over three-quarters of pensioners – around nine million people – will benefit.
The universal system meant some 11.4 million pensioners were in receipt of the benefit, which was slashed down to 1.5 million when the initial means-test was brought in.
The new threshold is above the income level of pensioners in poverty and broadly in line with average earnings, the Treasury said.
No pensioner will need to take any action as they will automatically receive the payment this winter.
“It’s a big deal for this government,” says Simon Case.
“It’s the clearest indication yet of what they plan to do between now and the general election, a translation of their manifesto.
“This is where you should expect the chancellor to say, on behalf of the government: ‘This is what we’re about’.”
As the former cabinet secretary, Mr Case was the man in charge of the civil service during the last spending review, in 2021.
On Wednesday, Rachel Reeves will unveil the Labour government’s priorities for the next three years. But it’s unclear whether it will provide all that much of an answer about what it’s really about.
Unlike the Autumn budget, when the chancellor announced her plans on where to tax and borrow to fund overall levels of spending, the spending review will set out exactly how that money is divided up between the different government departments.
Since the start of the process in December those departments have been bidding for their share of the cash – setting out their proposed budgets in a negotiation which looks set to continue right up to the wire.
This review is being conducted in an usual level of detail, with every single line of spending assessed, according to the chancellor, on whether it represents value for money and meets the government’s priorities. Budget proposals have been scrutinised by so called “challenge panels” of independent experts.
It’s clear that health and defence will be winners in this process given pre-existing commitments to prioritise the NHS – with a boost of up to £30bn expected – and to increase defence spending.
On Sunday morning, the government press release trumpeted an impressive-sounding “£86bn boost” to research and development (R&D), with the Science and Technology Secretary Peter Kyle sent out on the morning media round to celebrate as record levels of investment.
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What will be in spending review?
We’re told this increased spending on the life sciences, advanced manufacturing and defence will lead to jobs and growth across the country, with every £1 in investment set to lead to a £7 economic return.
But the headline figure is misleading. It’s not £86bn in new funding. That £86bn has been calculated by adding together all R&D investment across government for the next three years, which will reach an annual figure of £22.5bn by 2029-30. The figure for this year was already set to be £20.4bn; so while it’s a definite uplift, much of that money was already allocated.
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Peter Kyle also highlighted plans for “the most we’ve ever spent per pupil in our school system”.
I understand the schools budget is to be boosted by £4.5bn. Again, this is clearly an uplift – but over a three-year period, that equates to just £1.5bn a year (compared with an existing budget of £63.7bn). It also has to cover the cost of extending free school meals, and the promised uplift in teachers’ pay.
In any process of prioritisation there are losers as well as winners.
We already know about planned cuts to the Department of Work and Pensions – but other unprotected departments like the Home Office and the Department of Communities and Local Government are braced for a real spending squeeze.
We’ve heard dire warnings about austerity 2.0, and the impact that would have on the government’s crime and policing priorities, its promises around housing and immigration, and on the budgets for cash-strapped local councils.
The chancellor wants to make it clear to the markets she’s sticking to her fiscal rules on balancing the books for day-to-day spending.
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But the decision to loosen the rules around borrowing to fund capital investment have given her greater room to manoeuvre in funding long-term infrastructure projects.
That’s why we’ve seen her travelling around the country this week to promote the £15.6bn she’s spending on regional transport projects.
The Treasury team clearly wants to focus on promoting the generosity of these kind of investments, and we’ll hear more in the coming days.
But there’s a real risk the story of this spending review will be about the departments which have lost out – and the promises which could slip as a result.
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