Metro Bank is actively exploring the possibility of infusing up to £600 million in capital, given a recent nearly 50% decline in its share price, according to sources well-versed in the matter.
The UK-based challenger bank is presently engaged in discussions with prospective investors to secure £250 million in equity funding along with an additional £350 million in debt, with the aim of fortifying its balance sheet.
These deliberations have arisen in the aftermath of regulatory authorities rejecting Metro Bank‘s request last month to reduce the capital requirements associated with its mortgage business. Both the Prudential Regulation Authority and the Financial Conduct Authority have opted not to comment on Metro’s financial status.
In response to these developments, Metro Bank has stated, “As previously indicated, Metro Bank continues to assess the most effective utilization of its capital resources, with the goal of leveraging the deposit and asset origination platform that has been established.”
To facilitate this capital-raising initiative, Metro Bank has enlisted Morgan Stanley to provide strategic guidance and potentially spearhead the capital raise, as disclosed by a reliable source. However, Morgan Stanley has opted not to provide commentary on this matter.
Fitch, a prominent rating agency, placed Metro Bank on negative watch earlier this week, citing heightened risks to its business model, capital position, and funding. The bank’s market capitalization, which stood at approximately £85 million at the close of trading on Wednesday, has witnessed a substantial 98% decline over the past five years.
Fitch has expressed apprehensions about the bank’s short-term earnings outlook, primarily attributed to mounting funding costs driven by intensified competition for deposits and the potential for more expensive access to wholesale funding. Moreover, Fitch has highlighted that Metro Bank’s capitalization remains under pressure.
Furthermore, Fitch has underscored Metro Bank’s obligation to refinance £350 million worth of senior bonds by the impending October deadline.
In the preceding month, Metro Bank divulged that it had not received regulatory approval to revise the calculation of capital requirements for its mortgage book. This proposed alteration had the potential to bolster the bank’s capital position and enhance profitability. While Metro Bank has indicated ongoing engagement with the Prudential Regulation Authority, it has acknowledged the uncertainty surrounding the approval of its application. Some observers have interpreted the regulator’s stance on the mortgage business as indicative of frustration.
Founded in 2010, Metro Bank made history as the first new UK bank on the high street in over a century, representing a noteworthy example of the proliferation of challenger banks.
In 2019, Metro Bank admitted that its commercial loan portfolio carried more risk than previously reported. This revelation led to a 39% decline in its share price in a single day, accompanied by a £10 million fine from the Financial Conduct Authority (FCA), which cited the bank for misleading investors.
Colombian billionaire Jaime Gilinski, through his Spaldy Investments vehicle, is the largest investor in Metro Bank. His daughter, Dorita, serves on the bank’s board.
Summary
Metro Bank’s pursuit of a £600 million capital infusion reflects its proactive approach to address recent challenges. As the bank navigates regulatory hurdles and strives to enhance its capital position, the financial landscape continues to evolve. It remains to be seen how these strategic efforts will impact Metro Bank’s future in the dynamic world of banking and finance
Metro Bank is a UK-based challenger bank that was founded in 2010, making it the first new high-street bank to be established in the UK in over a century. It gained attention as a poster child for the growth of challenger banks.
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