Metro Bank’s Shares Plunge Amidst Plans for Fundraising Drive

High Street Lender Seeks to Boost Balance Sheet Amid Market Challenges

Metro Bank saw a substantial decline in its shares on Thursday as reports emerged that the high street lender was exploring avenues to raise significant capital to strengthen its balance sheet.

Exploring Multiple Options to Enhance Lending and Growth

The bank, established in 2010 by US billionaire Vernon Hill, issued a market statement on Thursday, confirming its consideration of a “range of options” aimed at removing obstacles to further lending and growth. This announcement led to a 25% drop in Metro Bank’s shares.

Options Include Debt Refinancing and Asset Sales

Among the options being contemplated are asking investors for assistance in refinancing £350 million worth of debt set to mature in 2025. Alternatively, the bank might explore raising hundreds of millions of pounds through debt sales, equity offerings, or asset disposals. Asset sales may encompass certain mortgage holdings.

Decision Yet to Be Made

Metro Bank emphasized that no final decision has been reached regarding the pursuit of any of these options. While the bank currently operates within regulatory limits, it is operating with a buffer, signifying the need for additional capital from investors to foster substantial business growth.

Positive Outlook Despite Recent Challenges

Metro Bank expressed optimism about its upcoming quarterly trading update, anticipating “continued momentum in personal and business current account growth and customer acquisition, in line with expectations.” The bank affirmed its positioning for future growth.

Share Prices Plummet Amid Fundraising News

Nonetheless, news of the fundraising plans prompted a sharp decline in Metro Bank’s share prices on Thursday morning. The shares were briefly suspended from trading, adding to the recent challenges faced by the stock market.

Ongoing Struggles and Recent Stock Market Performance

Metro Bank’s shares have witnessed a depreciation of approximately 64% in value since early September, resulting in the bank’s current valuation at £65 million. This marks a significant drop from its peak valuation of £3.5 billion in 2018.

Challenges Following 2019 Accounting Scandal

Metro Bank has been grappling with the task of rebuilding its reputation following a 2019 accounting scandal where it underreported its required capital reserves. The bank, along with two former executives, faced fines totaling £10 million for misleading investors.

Bank of England Decision and Market Challenges

Despite returning to profitability in the first half of this year, Metro Bank faced a setback last month when its application to the Bank of England was not approved, signaling concerns about the bank’s ability to hold reduced cash reserves against mortgage risks. This decision has heightened the bank’s need for capital infusion or asset sales.

Challenges in Earnings and Market Conditions

Rating agency Fitch recently indicated that Metro Bank’s earnings could face pressure due to factors such as competition for customer deposits and the increasing cost of raising funds in the market. Notably, Metro Bank bonds maturing in 2025 have been trading with a yield of approximately 33%, suggesting higher costs for attracting investors.

Uncertainty Surrounding Debt Issuance

Analysts at KBW expressed skepticism about Metro Bank’s ability to issue fresh debt in the open market due to the associated costs. They suggested that a “friends and family” transaction targeted at existing equity and debt investors might be the most viable prospect.

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