Shares in UK lender Metro Bank sank as much as 31% Thursday following a report that it was urgently seeking to raise funds to shore up its finances.
The Financial Times reported that the bank was in talks with investors to raise £250 million ($303 million) in equity and £350 million ($424 million) in debt, citing people with knowledge of the plan.
Metro Bank opened in 2010 as the first challenger to Britain’s major main street banks — including Lloyds (LYG), Barclays (BCS) and HSBC (HSBC) — in more than 100 years. It declined to comment on the report.
The bank said in a statement Thursday that it “continues to meet its minimum regulatory capital requirements” and was considering a range of options to raise more capital, including issuing shares and corporate bonds, refinancing its debt or selling assets.
“No decision has been made on whether to proceed with any of these options,” it added.
Metro Bank’s assurances did little to support its share price, which was trading 25% lower by early afternoon in London.
The bank’s shares are down almost 63% since mid-September when UK regulators refused its request to change the way it calculates capital requirements on its residential mortgages book.
The change would have allowed the bank to hold less capital, improving its profitability.
On Wednesday, ratings agency Fitch said it had put the lender on watch for a downgrade to its credit rating, citing risks to its capital position, funding and business model.
“We expect the group’s earnings prospects to come under pressure in the short term due to rising funding costs, resulting from higher competition for deposits and given likely more expensive access to wholesale funding. In addition, capitalization is tight,” Fitch said in a statement.
The ratings agency noted that Metro Bank had to refinance a £350 million ($425 million) bond by October 2024.
The lender has had a challenging few years. After reporting a financial loss in 2019, it embarked on a turnaround the following year only to be hit by the Covid-19 pandemic. The worsening economy drove an increase in bad debts, and the bank posted a loss of £311 million ($377 million) in 2020.
The losing streak continued for the following two years, but the bank said Thursday that it had recorded an underlying profit for three consecutive quarters, ending June 30.
Last year, the bank was fined £10 million ($12 million) by the UK Financial Conduct Authority after announcing in 2019 that it had understated the risk of certain commercial loans. The Prudential Regulation Authority, which sits within the Bank of England, had already fined the lender more than £5 million ($6 million) in 2021 for the same error.
Investors in banks are understandably jittery: In March, two regional lenders in the United States collapsed, sending shockwaves through the global financial system, and prompting regulators to take the extraordinary measure of guaranteeing all customers’ deposits in those banks.
But Chris Beauchamp, chief market analyst at IG, isn’t worried about a similar situation unfolding in the United Kingdom, calling Metro Bank’s problems “unique.”
“The challenger bank has never really been able to establish itself in the market, and its focus on [physical] branches has meant its fixed costs have remained high, while its bigger rivals cut back,” he told CNN.
The Financial Conduct Authority declined to comment on Metro Bank. CNN has also contacted the Prudential Regulation Authority.
— Hanna Ziady contributed reporting.
Read the full article here
