Metro Bank Bonds, Stock Tumble as Lender Mulls Capital Raise

Metro Bank Holdings Plc shares and bonds dropped Thursday as the lender confirmed it is exploring a potential fundraising.

(Bloomberg) — Metro Bank Holdings Plc shares and bonds dropped Thursday as the lender confirmed it is exploring a potential fundraising. 

A £250 million bond that provides tier 2 capital to the bank fell 19 pence on the pound to 35.3 pence, marking its biggest drop on record. A £350 million senior bond fell 8.3 pence to 61.8 pence, a record low, based on prices compiled by Bloomberg. Shares in the lender fell as much as 31% in London.

The lender said in a statement Thursday that it was “evaluating the merits of a range of options, including a combination of equity issuance, debt issuance and /or refinancing and asset sales,” confirming an earlier Bloomberg News report. It said no decision had been made on whether to proceed with any of these options.

“We suspect that some form of ‘friends and family’ transaction targeted at existing equity / debt investors would be the most likely prospect,” Edward Firth, an analyst at KBW, said in a note.

The bank’s chair Robert Sharpe met with UK financial regulators on Thursday. Sharpe “attended a longstanding, pre-diarised meeting with the PRA this morning,” a Metro Bank spokesman told the Financial Times.

New Bank

Metro Bank was the first new bank to enter the British mainstream in more than a century when it opened its doors in 2010. Co-founded by Vernon Hill, it is one of the most prominent British challenger banks that emerged to take on incumbents such as Barclays Plc and Lloyds Banking Group Plc. 

While others focused on expanding their online banking offerings, the firm has become known for building to its brick-and-mortar branch network, including in expensive locations like the King’s Road in Chelsea. It had 76 stores and handled 1.3 million personal current accounts at the end of June.

The lender has spent years trying to get approval from regulators to use an internal risk model to calculate its regulatory capital requirements. The approach — known as AIRB, or advanced internal rating-based method — could lead to a reduction in risk-weighted assets which, in turn, would mean less funds set aside.

A Sept. 12 disclosure that it wasn’t likely to secure approval anytime soon sent shares tumbling. That followed another selloff in 2019, when the bank said it had applied an incorrectly low risk weighting to parts of its loan book.

Fitch Ratings placed Metro Bank’s rating on “watch negative” on Wednesday, saying the risks surrounding the firm’s ability to refinance maturing debt have increased. 

The company, which has hired Morgan Stanley to advise it on its options, had £22 billion ($26.6 billion) of total assets at the end of June. It currently has a market value of about £65 million, compared with £3.2 billion at the end of 2017. Its total short and long-term debt amounted to £4.9 billion at the end of 2022, based on data compiled by Bloomberg.

Willett Advisors LLC, the investment arm for the personal and philanthropic assets of Michael Bloomberg, founder and majority owner of Bloomberg News parent Bloomberg LP, held shares in Metro Bank as of November 2021, according to a regulatory filing.

–With assistance from Leonard Kehnscherper.

(Adds detail on reported PRA meeting in fifth paragraph.)

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