"Metro's much-publicised problems may not be fixed by this capital raise led by its largest stakeholder."
Metro Bank has secured a new deal with investors to strengthen its balance sheet and avoid a takeover.
The package includes a £325m capital raise and £600m of debt refinancing.
The equity raise was led by Spaldy Investments, Metro Bank’s largest shareholder, which is contributing £102m. Spaldy Investments will become the controlling shareholder of the Bank upon completion of the transaction with a c.53% shareholding.
Metro says the capital raise will allow it to grow its assets "significantly over the coming years", via a gradual shift towards specialist mortgages and commercial lending to optimise risk adjusted returns.
The Bank is also in discussions regarding an asset sale of up to £3bn of residential mortgages in Q4 2023.
Daniel Frumkin, CEO of Metro Bank, said: “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 UK’s number one community bank.
"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. We thank our shareholders and noteholders for their continuing support of Metro Bank and our customers.”
Jaime Gilinski Bacal, founder of Spaldy Investments, added: “I have been an active investor in Metro Bank since 2019. The opportunity to become the Bank’s major shareholder is driven by my belief in the need for physical and digital banking underpinned by a focus on exceptional customer service. I believe that the package announced today enables the Bank to pursue growth and build on the foundational work undertaken over the past three years.”
Experts responded cautiously to the news, with one warning that the capital raise may not solve the reputational damages inflicted on the bank.
Speaking via Newspage, Ranald Mitchell, director at Charwin Private Clients, said: “Metro's much-publicised problems may not be fixed by this capital raise led by its largest stakeholder. Reputational damage will likely lead to further problems and its customers will need a lot more reassurances. In the worst case scenario, we could see a repeat of 2007. Metro Bank could still be Northern Rocked.”
Stephen Perkins, managing director at Yellow Brick Mortgages, also highlighted the hit on consumer confidence: "It's welcome news that Metro has managed to stabilise itself through further investment without having to sell the family silverware or be consolidated into another bank. However, they still need to address the underlying issues of a lack of deposits so that they are not in the same predicament in 12 months' time, and this has not been helped by the events of the past week with a lot of consumer confidence lost. The shift in focus to specialist and commercial likely reflects the greater margins to be found in these sectors and the fact they require less fluid capital."
Samuel Mather-Holgate, independent financial adviser at Mather and Murray Financial, questioned the role of the regulator: “This is further evidence that the financial services regulator isn’t just asleep at the wheel, but more like in an induced coma. How institutions are cyclically allowed to reach the precipice before getting emergency help shows a systemic lack of oversight when it comes to larger firms. The FCA should direct some of its onerous small firms team to larger caps and maybe they wouldn’t retain such a bad reputation.”
Ian Hepworth, director at Funding Solutions UK Limited, commented: “This deal looks to be good news for customers and employees of Metro Bank. However, there is blood on the carpet. Investors have been heavily diluted and at a price of 30p, which is a discount to the closing price of 45p on Friday. Some institutional bondholders are set to lose at least 40%. I hope these recent issues raise awareness of the Financial Services Compensation Scheme, which covers deposits of private individuals and businesses up to £85,000. This is per entity rather than per account. It is also per banking group so it is important to understand which banks operate within a group.”
Riz Malik, director of independent mortgage broker, R3 Mortgages, added: "When Metro first came onto the scene, their offering was refreshing and unique. Their mortgage products were not only competitive but backed by criteria that meant they had a place in the market. Unfortunately, over the years they have become less relevant and lost their way. This rescue deal may be short-lived if depositors have lost confidence and the outflows this week will show us if the steps they have taken are sufficient. It is sad that one of the challenger banks has got itself in this position but it shows you that being a bank is not as easy as it may seem."
