Metro Bank shares plunged on Thursday, after it emerged the high street lender was seeking to raise hundreds of millions of pounds to shore up its balance sheet.
The bank – which was founded by US billionaire Vernon Hill in 2010 – issued a market statement on Thursday, confirming that Metro was considering a “range of options”, which would remove barriers to further lending and growth. Shares were down by 25%
Options include asking investors to help refinance £350m worth of debt, before it falls due 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 some of its mortgages.
“No decision has been made on whether to proceed with any of these options,” Metro Bank said.
While Metro is still operating within the regulator’s limits, it is doing so within a buffer, meaning that it will need to raise more cash from investors to grow the business in any meaningful way.
The bank 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.
However, news of its fundraising plans sent shares plummeting on Thursday morning, before they were briefly suspended from trading, adding to recent stock market woes.
Metro’s shares have lost about 64% of their value since early September, leaving the lender worth £65m. It was worth £3.5bn at its peak in 2018.
Metro – which was the first new UK lender to hit the high street in more than 100 years – has been struggling to repair its reputation after its 2019 accounting scandal, 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 the lender’s need to raise cash or sell assets.
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Analysts are sceptical that Metro will be able to lure new lenders who may be scared off not only by the Bank of England decision, but concerns over Metro’s potential to earn more cash.
Rating agency Fitch said on Wednesday that the bank’s earnings could come under pressure due, in part due 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 KBW said it was “tough” to see how Metro could issue fresh debt in the open market, given the cost. “
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2023-10-05 04:24:45
Post from www.theguardian.com