It is now planning to sell up to £3 billion of residential mortgages
High street challenger Metro Bank has announced that it has secured a £325 million capital raise, alongside £600 million of debt refinancing, enhancing its balance sheet strength following reports that it direly needed funds to augment its finances.
The bank confirmed the deal over the weekend as shares fell on Thursday last week before recovering on Friday.
The equity raise was led by Spaldy Investments Limited, Metro Bank’s largest shareholder, which is contributing £102 million. Spaldy Investments Limited will become the controlling shareholder of Metro Bank upon completion of the transaction with around 53% shareholding.
Headline - Secured £325m capital raise, comprising £150m of new equity and £175m of new MREL issuance, alongside £600m of debt refinancing, enhancing balance sheet strength and accelerating earnings potential. Read more here.
— Metro Bank (@Metro_Bank) October 9, 2023
Daniel Frumkin, Chief Executive Officer at Metro Bank…
Meanwhile, Metro Bank also revealed that it is now in discussions regarding an asset sale of up to £3 billion of residential mortgages.
According to the bank, this would potentially reduce risk-weighted assets (RWAs) by around £1 billion.
“The announcement marks a new chapter for Metro Bank, facilitating the delivery of continued profitable growth over the coming years,” Daniel Frumkin (pictured), chief executive at Metro Bank, said.
“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.”
However, industry experts interviewed by news agency Newspage responded cautiously to the news, with one warning that the capital raise may not solve the reputational damages inflicted on the bank.
“Metro’s much-publicised problems may not be fixed by this capital raise led by its largest stakeholder,” Ranald Mitchell, director at Charwin Private Clients, commented. “Reputational damage will likely lead to further problems and its customers will need a lot more reassurances.”
Stephen Perkins, managing director at Yellow Brick Mortgages, said it was welcome news that Metro had managed to stabilise itself through further investment without having to sell the family silverware or be consolidated into another bank.
He, however, pointed out that the bank still needs to address the underlying issues of a lack of deposits, so that they are not in the same predicament in 12 months’ time.
“This has not been helped by the events of the past week,” Perkins noted. “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.”
“I hope Metro can weather their current troubles,” added Graham Cox, founder at Self Employed Mortgage Hub. “This refinancing and capital raise will provide short-term relief, but confidence in banking is everything, as we saw with Northern Rock.”
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