Metro Bank shares rebounded Friday morning, having fallen to a record low following concerns about its balance sheet.
Shares plunged following reports that Metro Bank was exploring options to raise up to £600m, forcing the bank to confirm it was considering options including issuing new shares, taking out new loans and selling assets.
Ratings agency Fitch had also downgraded the bank’s rating to “negative.”
Metro Bank, which was trading in 2016 at £20 a share, fell as much as 32 per cent on Thursday, ending the day at 37.5p with a valuation of less than £65m.
Metro Bank Stock Recovers Cautiously This Morning After Day of Turmoil
But on Friday morning the bank regained 15 per cent of its value to 43.1p, boosted by reports from Sky News that the lender had begun talks over a £3bn sale of its mortgage portfolio.
Mid-afternoon yesterday it emerged that Metro Bank chairman Robert Sharpe had been asked to meet officials from the Bank of England’s Prudential Regulation Authority and Financial Conduct Authority, the Financial Times reported.
But Metro Bank, whose bonds were also sold, thus increasing the cost of servicing the debt, later insisted that this was a “long-standing and previously scheduled meeting.”
Metro Bank is due to refinance £350m of its debt by October 2024. And reports suggested it could also be considering a £100m capital increase, although the Financial Times suggested this could be up to £250m.
But Victoria Scholar, chief investment officer at brokerage Interactive Investor, explained that this is not the first time that the shadow of financial difficulties has fallen on Metro Bank, whose shares have fallen about 98 percent in the last five years.
She said: Following its initial public offering in 2016 at £20 per share, the stock initially enjoyed a significant vote of confidence among investors, which recovered to around £40 in 2018.
‘However, since then things have largely gone downhill for the shares, which are now trading at around 40p, reflecting a lack of confidence and balance sheet problems.
‘After the US mid-market banking crisis and the forced bailout agreement for Credit Suisse at the beginning of the year, Metro is yet another concern in the sector.
‘However, it is a problem exclusive to the bank itself and not a problem that affects the entire sector. But it highlights how difficult it is for a challenger bank to compete with the long-dominant heavyweight lenders.
What is Metro Bank?
Founded in 2010 by Anthony Thomson and Vernon Hill, Metro Bank was the first new bank to launch in more than 150 years.
The commercial and retail bank saw rapid growth in its early days, starting with its first branch in Holborn, central London, and had planned to open 200 sites by 2020.
Metro Bank differentiated itself from its established high street rivals, attracting attention for consumer-friendly initiatives such as offering pet drinking fountains in its branches.
It offers a wide range of banking services, including current and savings accounts, term deposits, unit trust investment funds, home loans, car loans, debit, credit and prepaid cards, and SME and business loans.
Metro Bank has around 2.7 million customers and 76 branches, with customer deposits worth £15.5 billion in the UK.
Its Chairman, Mr Sharpe, has over 45 years’ experience in retail banking and also currently serves as Chairman of Hampshire Trust Bank, Pollen Street and Alba Bank.
CEO Daniel Frumkin has held commercial, risk, product and business executive level positions in the UK, US, Eastern Europe and Bermuda, and joined Metro Bank from his role as a director of operations of the latter’s Butterfield Bank.
Metro Bank ran into trouble in 2019 when it was forced to announce that it did not have the level of capital required to meet regulatory standards after discovering an error in the way it categorized commercial loans.
Concerns about the bank’s health at the time led to large depositors withdrawing cash and a significant drop in Metro Bank shares.
Michael Hewson, chief market analyst at CMC Markets UK, said Metro Bank “seems to have become synonymous with controversy in recent years”, noting that in 2019 there were also “questions about the bank’s corporate governance under investigation by regulators for their management. money from Iran and Cuba, both countries that are under EU and US sanctions.”
He added: “When new chief executive Dan Frumkin arrived, he inherited a bank that had to overcome a huge trust and competition deficit, and although revenues have increased in the period since, there has been little evidence that the bank would be capable of making a profit.’
Are clients protected?
Yes. The Financial Services Compensation Scheme (FSCS) is funded by a tax on all regulated financial services companies in the UK and protects your money if a financial services company goes bankrupt.
As well as banks, building societies and credit unions, the FSCS protects pensions, insurance, investments, mortgages, endowments, PPI and debt management.
FSCS protects money held in banks, building societies and credit unions up to £85,000 per person, per UK institution.
For a joint account, that amount doubles to £170,000 of protection per institution.
What is likely to happen next?
Metro Bank bosses are still considering their options, with the possibility of raising capital or selling some of its assets.
The size of a capital increase could reportedly target as little as £100m or as much as £250m, while the rally in its shares this morning suggests the market supports reports that the bank could sell its portfolio of mortgages.
Lenders could also hold talks with the bank about new financing or potentially a restructuring of their existing obligations.
Investors and customers should not panic, but should stay tuned for further updates from the company in the coming days and weeks.
Russ Mould, chief investment officer at stockbroker AJ Bell, said: ‘Metro as an individual institution is certainly being pushed into existential territory with shares now at record lows.
‘The key question is: will he find enough sponsors if he raises funds?
“Existing creditors and investors may feel they have no choice but to participate, although they are unlikely to do so with great enthusiasm.”
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