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U.K.’s Metro Bank Draws Takeover Interest From Carlyle

U.K.’s Metro Bank Draws Takeover Interest From Carlyle

Carlyle Group Inc. has approached British lender Metro Bank Plc about a possible takeover.

Metro Bank has engaged with the U.S. private equity firm but there is no certainty an offer will be made, it said in a statement that confirmed an earlier Bloomberg News report. Under U.K. takeover rules, Carlyle now has until Dec. 2 to announce whether or not it will make a firm offer for the company.

Shares in Metro Bank surged as much as 43% in London trading on Thursday. The stock was up 29% at 3:22 p.m., giving Metro Bank a market value of 229 million pounds ($309 million). 

Metro Bank was started in 2010, becoming the first new retail lender to open its doors in the U.K. in more than a century. It’s one of the most prominent of the British challenger banks that emerged to take on incumbents like Barclays Plc and Lloyds Banking Group Plc, whose reputations were tarnished by the 2008 global financial crisis. Metro Bank has become known for its branch network, including in expensive locations like the King’s Road in Chelsea. 

But Metro Bank’s image took a hit of its own in 2019, when U.K. regulators the Financial Conduct Authority and Prudential Regulation Authority began an ongoing investigation into how it misclassified certain assets. The lender, which had a market value of about 3.6 billion pounds at the peak, has seen its shares slide since then. 

In a third-quarter trading update last month, Metro Bank’s Chief Executive Officer Daniel Frumkin said the business had improved its lending mix and was seeing signs of a “gradual return to normality.”

Carlyle has deployed more than $10 billion investing in financial services firms, according to its website. Existing portfolio companies in the sector include wealth manager Hurst Point Group and insurance broker Hilb Group.

Its move for Metro is another sign that a long-awaited consolidation is gaining momentum among smaller U.K. lenders, which themselves face new competition from branchless rivals like Monzo Bank Ltd. and Revolut Ltd. 

Spain’s Banco Sabadell SA said in October that it had rejected a bid from the U.K.’s Co-operative Bank Holdings Ltd. to gain control of rival lender TSB Bank Plc. If a deal had been struck, the tie-up would have created a lender with more than 8 million customers for mortgages, current accounts, credit cards and other savings products.

The U.K. has been a hot bed for private equity takeovers this year, with buyout firms snapping up companies from grocery chain Wm Morrison Supermarkets Plc to aerospace supplier Meggitt Plc. Deals for banks are harder to execute, as requirements to hold regulatory capital make it harder to squeeze out returns. Lenders’ branch networks can also be expensive to maintain.  

Willett Advisors LLC, an investment arm for philanthropic assets of Michael Bloomberg, founder and majority owner of Bloomberg News parent Bloomberg LP, is an investor in Metro Bank.

©2021 Bloomberg L.P.