Britain’s Metro Bank announced a new $1.13 billion capital package agreed with investors and bondholders after its share price slumped on fears it was running dangerously low on cash. File photo by Neil Hall/EPA-EFE
Oct. 9 (UPI) — Shares of Britain’s Metro Bank rose on Monday as it announced a new $1.13 billion capital package agreed with investors and bondholders after its share price had previously slumped on fears it was running dangerously low on cash.
The $396 million in new equity from shareholders and refinancing of $731 million of debt would ensure assets grew significantly in coming years via a gradual shift toward specialist mortgages and commercial lending, alongside higher deposits and current accounts growth, Metro said in a filing to the London Stock Exchange before the market open.
“Today’s announcement marks a new chapter for Metro Bank, facilitating the delivery of continued profitable growth over the coming years. Metro Bank made a statutory profit after tax in Q3 2023, and continues to demonstrate ongoing momentum as we strive towards our ambition to be the U.K.’s number one community bank,” said CEO Daniel Frumkin.
“Our strong franchise is underpinned by our loyal customer base and engaged colleagues and we will continue to develop the Metro Bank offer to provide the digital and physical banking services our customers expect.”
Metro’s share price rebounded on the news and was trading at 71 cents at 5:30 a.m. EDT after gaining 15 cents, up almost 27%, on Friday’s close. However, the share price remains far below its year-to-date high of $1.87 in February.
Colombian banker Jaime Gilinski Bacal spearheaded the funding raise through his Spaldy Investments vehicle with the $124.3 million he put in boosting his stake in the bank to 53%, making him the controlling shareholder.
However, the debt restructuring will see some bondholders take a 40% haircut on the value of their bonds, rising to 45% if three-fourths of noteholders do not enter into lock-up agreements supporting the refinancing by Friday.
The 40% write-down will boost Metro Bank’s Tier 1 capital by as much as $122 million.
Separately, the bank said it was also in discussions regarding selling $3.65 billion of its residential mortgage book, consistent with a similar successful transaction in December 2020. The asset sale would slash Metro’s risk-weighted assets by $1.22 billion allowing it to reinvest the proceeds into cash at a higher yield.
However, the rescue package may not spell the end of the troubles for Britain’s first entrant to the High Street banking in more than 100 years, with industry insiders saying it was likely to end up being taken over by one of the country’s big four banks.
Metro Bank’s shares had slumped last week after reports suggested it needed to raise cash to shore up its finances. Its share price rebounded on Monday in response to the deal.
Monday’s deal bought Metro some breathing space but did not deal with the “fundamental challenges” of a costly business model built around physical branches in prime locations said former Barclays and Citi managing director Simon Samuels.
That was in contrast to the majority of banks that are shutting branches to focus on online banking.
“Essentially, Metro finds itself with an unsustainable cost base” and was unlikely to succeed in the long term, Samuels said.
Metro Bank has 76 offices serving 2.7 million customers with about $18.3 billion in deposits.
