BN Confidential: A Metro masterclass in how the establishment attacks disruption

By Alec Hogg.LONDON — Power brings responsibility. The trouble is not everyone who is entrusted with power is ready for that responsibility..I was reminded of the ageless truism this morning when reading yet another Financial Times hatchet job on Metro Bank founder and chairman Vernon Hill..___STEADY_PAYWALL___.Seems there is nothing the American can do right in the eyes of Britain's venerable pink paper. This time he is accused of "mistreating former business partners, who say he has a history of making sexist comments and dismissed one of them without cause shortly after she gave birth.".The story revolves around Hill and Metro Bank's largest shareholder Steven Cohen being sued in the US by the couple who started a pet insurance company..In 2008, five years after they started the business and presumably because they were running out of cash, the couple now suing invited Hill to invest and made him chairman. Four years ago, again presumably because the business needed more money, Hill's fellow billionaire pal Cohen also kicked in some cash in return for s stake..The couple are angry because they were demoted as co-CEOs a little while after Hill brought in a financial manager who he has worked with for 30 years. But the couple, whose stake has been diluted to 30%, were retained as board members..The court will be asked to decide whether they're entitled to $2m each in compensation after their demotion. The duo claim Hill suggested the husband becomes sole CEO after his wife fell pregnant and when that was refused, both were demoted..Read also: The Editor's Desk: Steinhoff, Metro Bank & the dangers of scandal.So much for the background..In reality, this is a hardly the earth shattering story the FT would have us believe. Rather, it's a common garden variety commercial dispute which keeps the huge American litigation wheel rolling. Something which in itself is quite a task considering the US has 1.3m lawyers to feed. A pond that's growing, too, with their numbers up 15% in the past decade, cementing by far the highest ratio of lawyers-to-public anywhere on earth..For billionaires Hill and Cohen, the $4m being demanded is chump change. Had they wanted to avoid the publicity, they could easily have settled. Yet despite knowing the reputational risk of a suit like this, they haven't..To any rational mind that alone raises some big questions. But an even bigger one is why an arcane story like this one ends up being prominently displayed on the front page of the FT's website?.A little archive searching reveals there is little mystery, too, in that..In the opinion of the worthies who wrote and edited the piece and 23 others like it since late January, Hill is a scoundrel. As they opine in their latest missive: "The accusations will add to concerns about Mr Hill's suitability to continue as chairman of Metro, which is already facing regulatory and investor pressure to strengthen its governance.".Quite a stretch to a rational mind. But read on and you'll soon concur there are other forces at work here..MEETING VERNON HILL.I first came across Hill's name after asking the CEO of SA's super successful Capitec Bank whether he would open in the UK. No way, responded straight-shooting Gerrie Fourie, because taking on Metro Bank would be just plain dumb..The next encounter came as the result of my own research after we had arrived in London in May 2016. Investec UK doesn't offer business accounts, so we were forced to seek an alternative. HSBC was eventually selected because it was the least bad among a truly pitiful awful bunch..But even they were so awful – and the staff so demotivated – that despite there being Metro Bank outlet where we lived, I decided to investigate and duly made the half hour trip to the closest one. Capitec's Fourie was right. For customer service, Metro Bank is a giant among banking midgets. I've been a delighted Metro "fan" since day one. And having personally tasted its hugely superior fare, am not surprised to see the bank's customer base growing exponentially..Impressed through personal experience, after looking at the annual reports I even decided to add the stock to the Biznews Global Share portfolio. That provided a further reason to keep an eye on the business. Nothing quite focuses the mind as having skin in the game (or, in this case, owning some shares)..But back to Vernon Hill..As a new client, soon after opening the account I accepted an invitation to a low key after-hours cocktail function at the Wimbledon store (not "branch" – like Capitec, Metro Bank sees itself as a retailer)..Guest of honour was Metro's founder who treated three dozen of us to a fascinating talk on his entrepreneurial journey. Then over soft drinks, crisps and sausages, personally handed out and signed copies of his autobiography..When I got to the front of the book-receiving queue, Hill found himself being asked for an interview (obviously…). My South African accent proved an advantage and media-shy Hill surprisingly agreed. Seems he has a soft spot for Saffers. He later told me Metro employs many of my travelling countrymen who are "hard workers and good entrepreneurs"..True to his word, we duly met in October 2017 for the recorded engagement at Metro Bank's low key Holborn headquarters above its first UK outlet. We had an hour together in his equally unpretentious office. The result was a wide ranging interview that you can listen to here..After leaving, it struck me I hadn't raised a nagging thought, one which should have informed the most important question of all: Nowhere on earth is "the establishment" as entrenched as in London. Doubly so in city's high street banking businesses. Yet here was an outsider, a brash, disruptive American, who revelled in rubbing their toffee noses in the proverbial. Surely the establishment would fight back?.As it happens, the response wasn't long in coming..THE ESTABLISHMENT FIGHTS BACK.Six months after that interview, Metro Bank had declared its first profit, quite an achievement for a business growing at breakneck pace since launching eight years earlier. In March 2018, Metro's share price hit just over double the £19 at which it traded on its first day as a listed entity in January 2016..But then the antibodies of the status quo kicked in. Viciously..First came an allegation of inappropriate payments to Hill's designer wife, the 73 year old's lifelong partner who is personally charged with creating the open, clean lines of every Metro Bank branch. It's illogical to think the billionaire Hills would risk hard-earned reputations over a few million pounds of a bank they started and control. But there it was. In black and white on the pink paper which London City types believe above all else. And thus began the deluge..Much as I hated to offload an investment in a great business, Warren Buffett's warning about scandals impacting share prices won the day. A month after the "scandal" began, we sold the portfolio's Metro Bank's shares at £32.82..Whether justified or not, it was now apparent that dark clouds were gathering. But even Hill's most ardent critics would not have expected the collapse which, in a year, has wiped three quarters off the price a stock which now trades at £8.20..The establishment's attacks have been persistent. And spearheaded by the FT..Just ahead of "improper payments to wife" came a report highlighting Metro as possessing the second lowest female board representation on the London Stock Exchange (only Mike Ashley's Sports Direct – at none – was worse)..Next came FT articles on "rumours" about "capital concerns". Then an op-ed urging "supine" shareholders to stand up to boards like Metro's. Followed by a frenzy among the gossiping class after it was "revealed" the bank had misallocated some loans to a category against which regulation required it to hold lower reserves..What Metro says was a technical molehill was turned into the proverbial mountain by the banking establishment. In the process, handing a very convenient club to the FT, which has flailed away at the sector's first material disruptor in a century and a half..A website search shows that since late January, the FT has published almost two dozen articles, all negative, about this still relatively small bank..Tellingly, its writers did not once ask any of the millions of Metro "fans" what they think of the "scandal." Perhaps because they knew the answer which people like me would offer: On service, fees and convenience, Metro lives on a different planet to its UK high street rivals..Hopefully the excellence of Vernon Hill's creation will prevail. And it will overcome attacks that are sure to keep coming, just like we saw in this morning's scuttlebutt..Its competitors' lobbying wheels are well greased. All those London club lunches, dinners and visits to Twickers are specifically designed to retain the status quo. And a key tool to ensure that the scribblers entrusted with the power to inform continue to protect the establishment..Alec Hogg is the founder and editor of Biznews.com

BN Confidential: A Metro masterclass in how the establishment attacks disruption

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