Metro Bank wants to raise as much as £600mn, after its shares have fallen by almost 50% in the last few weeks.
People familiar with the matter said that a UK challenger bank was in discussions with investors to raise £250mn as equity funding, and £350mn as debt financing to strengthen its balance sheet.
The talks began after the regulators failed to approve Metro’s request last month to lower capital requirements for its mortgage business.
Metro’s situation was not discussed by the Financial Conduct Authority or Prudential Regulation Authority.
Metro Bank said: “As stated previously, Metro Bank continues its consideration of how to best optimise its capital resources in order to allow it take advantage the deposit and asset creation platform that has already been built.”
Metro has hired Morgan Stanley as a strategic advisor and to lead any possible capital raise. This was confirmed by a source familiar with the decision. The US bank declined comment.
The rating agency Fitch placed Metro on a negative watch on Wednesday. It cited increased risks in its business model, the capital position, and the funding of the firm. At the close of Wednesday, the market capitalisation was about £85mn after a 98% drop in the last five years.
Fitch stated: “We expect that the group’s earning prospects will be under pressure over the short-term due to the rising costs of funding, which are a result of increased competition for deposits as well as more expensive wholesale funding. Capitalisation is also tight.”
Fitch also called Metro’s £350mn senior bonds due to be refinanced by October next year on the radar of Fitch.
Metro announced last month that it had received no permission by regulators to alter the way it calculated capital requirements for its mortgage book.
This change would have made the bank more profitable and improved its capital position. Metro stated at the time that it was “continuing to engage with PRA regarding its application but there is no guarantee that approval will be received”.
One advisor said that the PRA decision on mortgages was “a sign of their dissatisfaction”.
Metro launched in 2010 as the first new UK high-street bank for more than 100 year, and became the poster child of the rise of challenger banks.
Metro acknowledged in 2019 that the commercial loan portfolio it reported was much riskier than originally thought. This led to a 39 percent drop in the share price of the company in one day, and a £10 million fine by the FCA. The FCA said Metro had misled its investors.
Jaime Gilinski , a Colombian and billionaire, is the biggest investor via his Spaldy Investments vehicle. Dorita, his daughter, is on the board.
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