Inside Financial Services

The Return of a Banking Genius

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My old pal and partner stopped by the other day; I hadn’t seen him in over a year, primarily because he’s lately been spending over half his time in London building his phenomenally successful banking startup there called Metro Bank. But more on that in a minute.

If you don’t know about Vernon Hill and Commerce Bancorp., you’ve missed one of the banking industry’s all-time great stories of long-term growth (yes, growth) and value creation. It’s well-worth hearing in detail, but here’s an abbreviated version: Vernon started in the real estate business back in the 1960s helping Ray Kroc choose locations for McDonald’s restaurants (a skill that would become critically important to his future success). Then in 1973 he entered the banking business with the opening, in southern New Jersey, of the first Commerce Bank branch. Beginning with that single location, Vernon went on to revolutionize consumer banking and make his shareholders billions of dollars. Here’s how the New York Times described how he did it:

With a “Burger King approach” that standardized the look and feel of Commerce branches, Mr. Hill brought a retail mindset to banking that did not exist before. He focused on collecting deposits rather than making loans and on improving the customer experience rather than offering better interest rates. As rival banks championed the arrival of the cash machine, he opened friendly, spacious branches–and kept them open seven days a week.

“We believe that this is a retailing business and we want to drive as many customers into our stores as we can,” Mr. Hill said in an interview last year. “My competition sees customers in stores as costs so they do things to drive them out.”

His approach was an astounding success. Vernon grew Commerce from that one branch and nine employees in 1973 into a $48 billion juggernaut in 2007. Yet despite Commerce’s tremendous success, the regulators, in the single most outrageous instance of abuse I can recall in my 30-plus of following the banking business, forced Vernon out at Commerce for the sin of fully disclosing Commerce’s perfectly legal dealings with related parties. (It’s more than a little ironic, in my view, that regulators were coming down hard on a truly capable banker at just the point in the cycle when the banking industry could have used a few more capable bankers.) Soon after Vernon’s departure, Commerce was sold for $8.5 billion, netting Vernon over $400 million.

So what did Vernon do next? Simple: he replicated Commerce’s success in London via Metro Bank–the first new consumer bank in the UK in 138 years. It is essentially Commerce 2.0-only even more successful. Metro Bank has opened 19 locations to date with another six under construction; Vernon’s longer-term goal is to open 200. As noted, the bank is essentially using the same playbook that brought so much success at Commerce: woo retail customers (and their deposits) by offering first-class convenience and service. So far the playbook is working even better than it did the first time around. Metro has £900 million in deposits, a level that took Commerce 17 years to reach.

It’s hard to comprehend just how successful Vernon’s approach to banking is compared to that of Commerce’s 7,000 banking competitors in the U.S. or the ten competitors Metro Bank has in London, but the next two charts may help. The first shows the average number of retail checking accounts opened per branch, per month at U.S. banks. You’re reading those numbers right: the average U.S. bank branch opens just 17 retail checking accounts per month! (By the way, it closes on average 15 per month!) The best quartile of bank branches open on average of 25 per month and the bottom quartile open just 11.

Now compare those numbers to the number of checking accounts Commerce opened per branch per month during its heyday (around 300) and the number that Metro Bank is opening in London now (700). Those numbers are simply astounding!

Or let’s look at deposit dollars. The typical U.S. bank branch adds $2 million in deposits annually. For Commerce in 2007 (its last year of independence) the number was $20 million. At Metro Bank it’s $60 million. Again, simply astounding.

So Vernon Hill has, not once, but twice, and in two different markets, built growth machines in the supposedly mature and sleepy banking business. That has to make him the world’s greatest growth-oriented banker, probably of all time. If you’re interested in learning more about how Vernon upended an industry, I highly recommend his book, Fans! Not Customers: How to Create Growth Companies in a No-Growth World (Profile Books, 2012). In it, he discusses not only his strategies and tactics for banking, but also for another more obscure industry he’s been investing heavily in: pet insurance.

Metro Bank is privately held today with an impressive group of investors. Vernon Hill is the largest shareholder. I believe the company will likely go public sometime in the next few years, and I, for one, look forward to investing in a true rarity: a growth bank stock!

What do you think? Let me know!

25 Responses to “The Return of a Banking Genius”

  1. Talig

    I seem to recall that Commerce was borrowed short and lent long. Is this also the case at Metro?

  2. tom brown

    metro is losing money because it is opening branches at such a rapid pace. The investors are all for it because they can watch the success of individual branches. They can decide to make money at any time by slowing the branch expansion but the investors want to go big fast and turn profits later. Each capital raise has been at a signigicantly higher enterprise value.

  3. SW Pilgrim

    Hooray for Yankee ingenuity! The Commerce robbery was the ultimate “Bank Job”– officially steal the bank on behalf of foreigners! Go Vernon.!

  4. Winston Wolf

    as my character says in “Pulp Fiction”, regarding the huge losses mentioned in the first post, ” let’s not go sucking each other’s ****’s just yet”. Because, after all, it’s making profits that in the end will define success.

    • Lucimar

      Hi EveryoneI just got back from the Outer Banks! Did some hang gliding on the dunes and it was GREAT. I am wonkirg on getting a hang 1 so I can participate in the Hang Glide Spectacular in May. I have some video and I will hopefully get it posted on here soon. I hope that if you are looking to do something exciting and have some fun you will consider a visit to Kitty Hawk Kites. Please tell them that TJ’s Mom sent you! Call me and we can get you ready for your next adventure.

  5. Cecil James (Former Commerce Guy)

    Well written synopsis of the Commerce – Metro (UK version) / Vernon Hill story. A month does not go by without hearing from friends in our US based communities that they wished Commerce was still in place and growing. It was truly a growth story in a mature and, to a large degree, unexciting industry before the great financial meltdown in 2008-2009.

    It did not surprise me one bit that Metro was a success in UK. Many folks were exported from the US to help establish the “culture” over there. It took hold and is thriving in the UK’s oligopolistic banking system (most are DOA today) Hat tip to Vernon and my former colleges from Commerce!

    • Costel

      I’ve started asknig permission in woodbury, washington county. so far i’m 0-3. I’m on the waiting list for a plat book.Like everyone else here i’m looking for spots close to home. i’m also asknig churches in the area who are located on land with wooded areas etc The city of woodbury has a map indicating where you can hunt on private land with signed permission you need to present to the police. i’m hoping i get permission from a couple of land owners.

  6. rivvir

    Ok, can’t disagree. I’ve used hsbc in several countries and found them to be heads and shoulders professionally above any US based bank i’d used. Uniformly head and shoulders above. Can’t disagree with the spending money to grow strategy, the problem with the American psyche is i want it all and i want it all now. I think that’s why so many are unprepared financially for the future.

    • Yassine

      Den prepei na xtitsei kanena neo mall sto kentro, kai pragmatika aporw pou to proteines! Esy o idios den eleges prin kati mhnes gia dromous pou prepei na ginoun pezodromoi, anaplash me prasino kai tonwsh-sthrixh twn mikrwn epixeirhsewn? Ola auta den symbadizoun me to xtisimo enos akomh mall, ektos an pisteueis oti h Athina mporei na mimithei alles prwteuouses ths Eurwphs pou exoun rymotomia kai swsth organwsh…

  7. Bill from Mahwah

    Vernon revolutionized banking in the US, unfortunately TD Bank is slowly undoing the changes he made to the industry. Free Checking gone, long hours gone in many of the branches, Closed Sunday in upstate branches, Charging for non customer use of penny arcade, long hold times for customer service, and the list goes on. I would like to see the growth comparisons TD vs Commerce.

    • Leinha

      Hi Andrea,This property has been retend. Do check back soon for more properties like it. We get a lot of rental properties in this area. Thank you for your interest!

  8. Leon L. Levy

    Vernon’s the best banker in this century.

    • ArteNisa

      my dad is the best because lets me shop at tonik and he wares tonik clhtos.his favoirite jumper is this sick quicksliver one. when theres a sale on hes always is in there and buying the sickest stuff. dads 40 years old and he is always trying his best to entertian my brother and i by; fishing, bike rides, playing footy and basketball, but the best thing he does is shop at tonik with us love u dad and also tonik

  9. Michael Keller

    Vernon Hill is a good bet. I have invested in him in the past and would like to in the future. Hopefully he will go public. If his next round is private equity he is sure to want strategic partners.

    • Celso

      I have lived in the D.C. metropolitan area for a nubemr of years, but from living in the suburbs and not the city itself, I feel like I’m lacking in my knowledge of cool hidden treasures. I love all the free museums, especially the National Gallery of Art. I think that the food court at the National Museum of the American Indian is awesome, especially as far as Mall museum cafes go. As far as memorials, the World War II memorial and the new Martin Luther King Jr. memorial are impressive. One thing to warn you about downtown D.C. is to be prepared for security checks at every museum on the Mall. My parents live in Maine and weren’t used to all the security and it tired them out (we visited Assateague the next day which they enjoyed more). My dad was especially thrown off by an incident where he went to take a picture of a pretty flowering tree somewhere not far from the National Mall and a security guard came running out of the building next to the tree and chastised him, telling him he couldn’t take the picture because it was a government building behind. (I think it was the Agriculture building, but am not sure.) So just be aware.Depending on the time of year you go, I remember enjoying a bike ride on the Mount Vernon Trail. I went from Alexandria to just about Mount Vernon. Someone mentioned Annapolis above, and it is pretty right there on the Chesapeake and kind of unique what with being the state capital and the location of the Naval Academy. One of my fondest memories was getting the opportunity to sail in Annapolis Harbor. If you go to Annapolis, Chick and Ruth’s Delly is a must-stop place to eat, and they name their sandwiches after politicians. You might want to check out to see what festivals and events are going on in D.C. and see if you can coincide your visit with one of interest, because it’s exciting to be in D.C. during events, as long as you can tolerate crowds. D.C. is absolutely gorgeous during cherry blossom time. And it’s exhilarating to be in the nation’s capital on the 4th of July. (Although security becomes even higher on that day.)I go to the National Book Festival which is usually at the end of September and have a lot of fun. I don’t try to meet with specific authors, so I don’t spend much time in lines while there, and I can put up with the crowds as long as it isn’t raining or extremely hot. Sorry for the long comment. I hope some of this is helpful. Enjoy planning your trip!Christyb4s last [type] ..

  10. Captain Eddie

    Congratulations to Vernon Hill on his new venture in England.
    We had a great “ride” with Commerce the first time around and we
    are anxiously looking forward to a chance to do it again with Metro.
    Vernon had better hurry up though, because I’m 85 and you never
    know when you are going to be shown the “exit sign”. !

    Captain Eddie in Villanova, PA.

  11. Scott Sommer

    Great article Tom! Always love to see our benchmarks to boot.

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  12. Wyld Byll Hyltnyr

    Vernon Hill did build a very successful bank in Commerce; however, onme must wonder how much his numbers were helped by Fast Eddie’s disastrous acquisition of Core States and the ensuing flight of customers from First Union.

    • Lizzie

      Hi EveryoneI am here in Lander Wyoming dropping my son off at the National Outdoor Leadership School for a seetsmer in the Rockies. What a beautiful part of the country! We hiked through Sinks Canyon and visited a Ghost Town and while there took a short hike on the Continental Divide trail. Today we leave for Strawberry Springs. They are natural hot springs that flow out of the mountains near Steamboat Springs Colorado. I am really looking forward to the fall and all of my new and current clients. Perhaps plan a trip to hiking in nearby Harriman State Park or climb Pinwheel Vista located right in Vernon. Thanks for reading this and have a great day.

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