Metro Bank secured a last-ditch deal on Sunday evening to stabilize its beleaguered financial position after a weekend filled with speculation about future of the bank.
The London-listed Bank said that it had reached an agreement on a £325m debt refinancing and £600m in capital raising after racing to close a deal prior to the opening of markets on Monday morning.
The Bank of England announced the sale of the bank just hours after it was reported that they were in contact with potential buyers.
Metro Bank has agreed to a deal in principle that will see Colombian billionaire Jaime Gilinski Bacal (65), lead a £150m capital raise via his investment vehicle Spaldy Investments.
Spaldy will increase its stake in Metro, already the largest investor. Its stake will grow from 9.2pc up to 53pc, if this deal is finalized. Existing investors’ stakes will be heavily devalued.
Metro sells shares for 30p each in its equity raise. This compares to the closing price on Friday of 41.36p. The share price has fallen by over 67pc this year.
The equity raise is contingent on the refinancing of debt and raising £175m in new regulatory capital. Metro stated that it is confident of completing all three components of the transaction by the end of this year. The refinancing will be subject to regulatory approval.
The Bank said that it is still in discussions with a £3bn portion of its mortgage book, to strengthen its balance sheet.
Metro’s CEO, Dan Frumkin said that the deal was a “new beginning” for the lender.
Mr Gilinski, one of the richest people in Latin America said: “I think that the package announced allows the bank to pursue its growth and build upon the foundational work done over the last three years.”
The Bank of England had contacted potential Metro buyers over the weekend, as the lender’s Board scrambled for a lifeline.
After EY’s involvement in the hunt for a purchaser, it was believed that high street banks were weighing up their bids. This followed Metro’s share price plummeting last week due to concerns over its balance sheet.
Santander was approached by NatWest Group and Lloyds Banking Group. HSBC, JP Morgan, and HSBC were also asked about a possible deal to buy Metro. Santander hired Robey Warshaw to evaluate Metro. George Osborne, a partner at the boutique investment firm, is also a member.
A source familiar with the matter said that Bank of England’s Prudential Regulating Authority (PRA), was looking for an “outright Metro sale”, adding, “EY is conducting enquiries while the PRA pulls the strings.”
On Sunday night, a spokesman from the Bank stated: “The PRA is pleased with the steps Metro Bank has taken to improve its capital position.”
Metro has over 2.7 million customers in the UK and 76 branches. The Financial Services Compensation Scheme protects deposits up to £85,000 in the event of a bank or financial service company failure.
Metro’s troubles began last month, after the PRA informed it that its capital rules would not be relaxed. The shares then fell by half in just a few weeks.
The crisis accelerated last week, after the credit rating agency Fitch placed Metro Bank under “negative” alert for possible downgrades.
Metro was under pressure because it had £350m in debt that needed to be refinanced by October 2024. The borrowing was linked to regulatory capital requirements, and Metro would have been in violation of banking regulations if it had not secured new financing.
After the deal announced on Sunday evening, this refinancing will be delayed until 2028.
Metro expects the complex refinancing deal and equity raising to be completed before the end the year.
Last week it was revealed that officials from Threadneedle street and the Treasury were in discussions about the Metro situation.
It was revealed on Friday that last Monday, a group representing Metro bondholders had approached the board of the lender with an offer to inject £600m in capital.
Shawbrook, a rival British lender, made several unseen takeover offers to the London-listed Bank. One of these was last month.
Investors expected a further decline in Metro’s stock price. According to Ortex analysts, short positions (bets against the stock) have risen from 1.36pc to 9.55pc.
The Treasury, EY and Lloyds declined to comment. Santander, NatWest and EY declined to comment.