Metro Bank is considering raising hundreds of millions of pounds from investors, weeks after the high street lender failed to convince regulators it could be trusted to hold less cash against its mortgage risks.
The high street lender, which became the first new chain in the UK for more than a century when it was launched by the American billionaire Vernon Hill in 2010, had applied to use its own internal models to assess the risks of its mortgages, but that request was denied in early September.
Metro Bank has seen its share price tumble more than 50% this month after the Bank of England’s decision. If Metro’s plan had been approved, it would have significantly reduced the lender’s capital burden.
The lender is now considering options to shore up its balance sheet before £350m worth of debt comes up for refinancing in 2025, although it has an option to do so in October 2024
Metro Bank may also consider raising money by selling shares, and has hired bankers at Morgan Stanley to work on the fundraising, Sky News reported, adding that investors could be tapped for upwards of £100m. Metro Bank is worth less than £100m, having been worth £3.5bn at its peak in 2018.
Executives will carefully consider the best time to raise money from investors. While Metro Bank recently returned to profit in the first half of the year, the stock market reaction to the Bank’s decision suggests investors are sceptical over Metro Bank’s fortunes. That could make it more expensive to raise debt, and harder to convince investors to cough up cash for shares.
Investors are on high alert for wobbles in the banking sector following the mini-crisis in March that resulted in the surprise collapse of three regional US lenders, including Silicon Valley Bank. Switzerland’s largest lender Credit Suisse failed weeks later.
There are also looming concerns about the prospects for the UK economy, which could still face recession as businesses and consumers grapple with high inflation and interest rates.
Metro Bank said: “As previously stated, Metro Bank continues to consider how best to optimise its capital resources to allow it to take advantage of the deposit and asset origination platform that has been built.”
Rating agency Fitch said on Wednesday that it expected the bank’s earnings prospects “to come under pressure in the short term due to rising funding costs, resulting from higher competition for deposits and given likely more expensive access to wholesale funding.
“In addition, capitalisation is tight. This increases execution risk and curtails the bank’s ability to grow its business and strengthen its profitability.”
The lender has worked to revive its reputation after an accounting scandal in 2019, which sent shares plunging and sparked panic among its customers, causing a mini bank run that spring.
News that Metro Bank misreported the assets used to calculate how much capital it needed to hold prompted the biggest single-day collapse in a UK bank’s share price since the 2008 financial crisis, and resulted in the resignation its chief executive Craig Donaldson months later.
The Financial Conduct Authority eventually fined Metro Bank and two of its former executives – including Donaldson – more than £10m for misleading investors last year.
The Bank of England’s regulatory arm, the Prudential Regulation Authority, declined to comment.
• This article was amended on 5 October 2023 to better explain the refinancing deadlines.
