Metro Bank Shares Plunge as Lender Considers £600 Million Capital Boost
Metro Bank, one of the UK’s leading challenger banks, saw its shares plummet by over 25% on Thursday after reports emerged that the bank was exploring options to raise up to £600 million ($728 million) in debt and equity to bolster its finances. This comes as the latest setback for the bank, which has been plagued by a series of issues since its stock market listing in 2016.
The bank’s shares have lost around two-thirds of their value since mid-February, leaving it valued at just £87 million as of Wednesday’s close. Despite this, Metro Bank reported having approximately £15.5 billion in customer deposits as of June 30.
Thursday’s sharp decline in share price is just one in a series of challenges the bank has faced in recent years, including accounting errors, leadership departures, and delayed regulatory approval for key capital reliefs. The bank’s fundraising efforts may include selling shares to raise over £100 million, according to three sources familiar with the matter.
In response to the reports, Metro Bank released a statement on Thursday confirming that it was indeed considering its options. However, the bank emphasized that it had met its minimum capital requirements and had not made a final decision on its fundraising plans. “The company is evaluating the merits of a range of options, including a combination of equity issuance, debt issuance, and/or refinancing and asset sales,” the statement read.
It is important to note that there is no indication that customer deposits are at risk. Metro Bank’s deposits are backed by a government guarantee of up to £85,000. Despite this, the bank has recently faced increased pressure on its high-cost business model and future earnings prospects due to higher capital requirements imposed by regulators.
Metro Bank’s chairman recently held a scheduled meeting with officials from its main regulator, the Bank of England’s Prudential Regulation Authority (PRA), to discuss the situation. Both the PRA and the Financial Conduct Authority declined to comment on the matter.
The decline in Metro Bank shares triggered two brief automatic suspensions in trading, and the bank’s bonds also plummeted in value. Some analysts expressed skepticism about the bank’s long-term prospects, with Gary Greenwood, a banking analyst at Shore Capital, stating that supporting a further capital raise for the struggling bank would be unwise.
Metro Bank, founded in 2010, quickly gained popularity among customers with its customer-centric approach and unique branch locations. However, the bank faced a major setback in 2019 when an accounting error led to a misreporting of its risk-weighted assets, resulting in a substantial loss of market value and the departure of top management figures.
Despite these challenges, Metro Bank said it expects its forthcoming third-quarter trading update to show growth in personal and business current accounts, in line with expectations. The bank’s board remains confident in the merits of its customer-centric model and believes there are significant opportunities for growth, provided the company strengthens its balance sheet.
As the situation unfolds, Metro Bank has brought in Morgan Stanley as an adviser, while Jefferies recently stepped away as the firm’s broker. Metro Bank declined to comment on this matter.
While regulators in the UK have assured the public that the banking system is safe and stable, Metro Bank’s current struggles highlight the challenges faced by challenger banks in an increasingly competitive market.
More detail via Reuters here… ( Image via Reuters )