Metro Bank shares have plunged by a quarter as the high street lender seeks to sell-off billions of pounds’ worth of mortgages, or tap investors for more cash, in an effort to shore up its balance sheet.
The bank – founded by the US billionaire Vernon Hill in 2010 – issued a stock market statement on Thursday, confirming that Metro was considering a “range of options”, which would remove barriers to further lending and growth.
Shares dropped by as much as 30% at one point before easing slightly to close down 25%, their biggest one-day fall since 2019.
Options include asking investors to help refinance £350m worth of debt before it comes up for refinancing in 2025. However, it could also involve raising hundreds of millions of pounds through the sale of debt, shares or assets. Assets sales are likely to include a portion of its mortgage book.
Metro’s team – which includes bankers at Morgan Stanley – have reportedly started to approach rivals including Lloyds and NatWest about buying £3bn worth of its home loans. Metro, Lloyds and NatWest all declined to comment.
“No decision has been made on whether to proceed with any of these options,” Metro Bank said.
In late 2020, the bank sold a portfolio of owner-occupied residential home loans worth about £3bn to NatWest.
While Metro is still operating within the regulator’s limits, it is doing so within a buffer, meaning it will need to raise more cash from investors to grow the business in any meaningful way.
The bank has said it expected its next quarterly trading update to show “continued momentum in personal and business current account growth and customer acquisition, in line with expectations”.
“Metro Bank continues to be well positioned for future growth,” it said. The lender holds about £15.5bn worth of deposits for its roughly 2.7 million customers, which it serves through 76 branches across the UK.
News of its fundraising plans sent the bank’s shares plummeting on Thursday and they were briefly suspended from trading at one point. The shares have lost about 63% of their value since early September, leaving the bank worth £65m. It was worth £3.5bn at its peak in 2018.
The Bank of England’s watchdog, the Prudential Regulation Authority is continuing standard monitoring of Metro’s operations. Robert Sharpe, Metro’s chairman, met the watchdog on Thursday, but the lender’s spokesperson said this was a “longstanding” meeting that was planned before the fundraising announcement.
Metro – which was the first new bank to hit the high street in more than 100 years – has been struggling to repair its reputation after an accounting scandal in 2019, when it underreported how much capital it needed to hold against its risks. The bank and two former executives were fined £10m for misleading investors.
While it finally swung back to profit in the first half of this year, investors were spooked last month when Metro revealed it had failed to persuade the Bank of England it could be trusted to hold less cash against its mortgage risks.
If that application had been approved, it could have significantly reduced Metro’s need to raise cash or sell assets.
Analysts are sceptical that it will be able to lure new lenders who may be scared off not only by the Bank of England decision but by concerns about Metro’s potential to earn more cash.
The rating agency Fitch said on Wednesday that Metro’s earnings could come under pressure due, in part, to competition for customer deposits and how costly it had become to raise money on markets.
For example, Metro Bank bonds due to mature in 2025 have been trading with a yield of about 33%, suggesting the lender would have to pay more to lure investors.
Analysts at the investment bank KBW said it was “tough” to see how Metro could issue fresh debt in the open market, given the cost.
“We suspect that some form of ‘friends and family’ transaction targeted at existing equity/debt investors would be the most likely prospect,” they said.
