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The Bank of London was readying plans this summer for a solvent wind-down in case it was not able to raise enough money in time to boost its capital buffers, according to two people familiar with the matter.
The company, which offers payment and settlement services to other institutions, was working on a contingency plan as recently as July to wind down the bank in an orderly fashion, the sources said. This type of regulator-approved process involves returning money to creditors and depositors.
However, the bank successfully completed a £42mn fundraising in August, led by existing investor Mangrove Capital Partners, meaning that it did not need to deploy its back-up plan. Mangrove’s chief executive Mark Tluszcz also sits on the board of The Bank of London’s holding company.
The Bank of London said: “At no stage in its history has The Bank of London been insolvent nor has its board had any intention of triggering the wind down of the bank.”
The bank’s holding company — whose board includes private equity executive Harvey Schwartz and Labour party grandee Lord Peter Mandelson — has been in the spotlight over the past week after it was hit with a winding-up petition from UK tax authorities over unpaid debts, which has since been withdrawn.
The bank confirmed over the weekend that it was “fully up to date” with its tax payments, noting the issue had been an “administrative handling delay.”
A solvent wind-down process means customers of a bank are able to withdraw their deposits without recourse to the Financial Services Compensation Scheme, which covers up to £85,000 of deposits for each client per institution. A bank in solvent wind-down would not need taxpayer support.
All British banks must have recovery and resolution plans, which includes a solvent wind down, although the Bank of London’s preparations were at a more advanced stage than routine contingency planning, according to two people involved in the process.
The Bank of England’s Prudential Regulation Authority states in its rule book that it expects banks “to engage with their supervision team at an early stage” if they are considering enacting their solvent wind-down plan.
The PRA’s aim is to make sure that as newer banks grow, they “would be able, if necessary, to exit in an orderly manner.”
The Bank of London markets itself as an alternative to large high street banks such as NatWest and HSBC for clearing, payment and settlement services.
The Bank of London said it surpassed £500mn of deposits in August. In 2023, it said it was valued at $1.1bn.
The start-up places its customer deposits at the central bank rather than lending them out and therefore considers itself a “safer by design” option that is not vulnerable to bank runs, according to its website.
Earlier this month, The Bank of London said its founder Anthony Watson would step down as chief executive and move to a new role as senior adviser.
The Bank of London added in its statement: “Since it launched in 2021, the bank has always maintained ample capital to operate in a safe and sound manner and its financial resources were recently further strengthened with the recently announced £42 million fundraising.”
The Bank of England declined to comment.