FTSE 100 suffers major dip after Metro Bank takeover talks scrapped

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It was first revealed the New York-based firm had approached Metro Bank earlier this month with Metro Bank confirming it had received an offer for a 100 percent stake. Metro Bank shares leapt by 30 percent on the news at the time but the collapse in talks has now dealt a further blow to the company. Carlyle have not given an explanation for the change in plan but simply said it had agreed with Metro Bank “to terminate discussions regarding a possible offer”. Investors had hoped the buyout might change the fortunes of Metro Bank which has struggled in recent years with its shares tumbling from a high of just over £40 per share in March 2018 to 104p today.

The bank has been in particular difficulty since 2019 when a major accounting error led to its founder Vernon Hill stepping down.

Mr Hill was replaced by restructuring specialist Dan Frumkin who previously worked at Northern Rock and Royal Bank of Scotland.

Investors hoped Mr Frumkin’s history with corporate turnarounds would aid the challenger bank’s recovery but it still faces an uphill struggle.

Metro Bank launched in 2010 as the self-described first high street bank to open in the UK in over 100 years.

The UK has seen a growing market for smaller challenger banks in recent years but many have struggled to dent the market share held by big operators such as Barclays and Lloyds.

Metro Bank attempted to set itself apart with a business model built on customer service with heavy investment in branches open seven days a week.

But the bricks and mortar investment has since proved a millstone around its neck.

Susannah Streeter, senior Investment and markets analyst at Hargreaves Landsown commented: “it’s Metro’s real estate footprint which may have proved a cost which stuck in the craw of Carlyle.

“While other challenger banks have focused on apps and an online presence, Metro has also been locked into long leases in city centres, at a time when footfall in once busy streets has struggled to recover.

“With other banking upstarts gaining market share, Carlyle may be tempted to look elsewhere, particularly at a time when expected rising interest rates creates the opportunity for banks to increase their earnings substantially.”

Since the deal fell through Metro has said: “The board continues to strongly believe in the standalone strategy and future prospects of Metro Bank.”

Despite the statement Metro Bank could still prove an attractive target for a future buyer though.

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Head of Investment at Interactive Investor Victoria Scholar said: “With interest rates in the UK on the cusp of moving higher and with Metro Bank’s share price down more than 20 percent year-to-date, the challenger lender remains a possible M&A target.”

Its main challenge going forward is likely to be the greater shift to digital banking away from the high street branches it has become known for.

A trend accelerated by the pandemic.

Ms Streeter said: “It’s going to be a challenging time ahead for the challenger bank, with the era of open banking spawning many more FinTech entrepreneurs to launch ventures which could steal market share.”

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