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"Metro Bank could still be Northern Rocked" despite capital raise and debt deal

ended 09. October 2023

Overnight, Metro Bank announced it has confirmed a deal with investors comprising a £325m capital raise and £600m debt refinancing package. But one expert said “Metro Bank could still be Northern Rocked” while another criticised the regulator for "being asleep at the wheel".

The equity raise was led by Spaldy Investments Limited, Metro Bank’s largest shareholder, which is contributing £102m. Spaldy Investments Limited will become the controlling shareholder of Metro Bank upon completion of the transaction with a c.53% shareholding. Selected highlights:

  • 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.
  • Capital Package significantly strengthens CET1 ratio, takes Metro Bank out of the CRD IV Combined Buffer and is expected to support Metro Bank’s delivery of RoTE in excess of 9% in 2025 and low double-digit to mid-teens thereafter over the medium term.
  • Delivers a pro forma 30 June 2023 CET1 ratio in excess of 13% and MREL ratio in excess of 21.5%.
  • “Provides an opportunity to grow assets significantly over the coming years, via a gradual shift in asset side growth towards specialist mortgages and commercial lending to optimise risk-adjusted returns; supported by continued success in raising deposits and driving current account growth.”
  • In discussions regarding an asset sale of up to £3bn of residential mortgages which are expected to reduce RWAs by c.£1bn (assuming a c.£3bn Asset Sale), increase Metro Bank’s CET1 ratio and be earnings accretive in 2024, subject to pricing.

Daniel Frumkin, Chief Executive Officer at 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 Limited, 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. According to Ranald Mitchell, director at Norwich-based Charwin Private Clients: “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.”

Mitchell's views were shared by Graham Cox, founder at the Bristol-based broker, Self Employed Mortgage Hub: “I hope Metro can weather their current troubles. This refinancing and capital raise will provide short-term relief, but confidence in banking is everything, as we saw with Northern Rock.”

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 advisor 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 Croydon-based Funding Solutions UK Limited, said there was blood on the carpet: “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.”

Meanwhile, Riz Malik, director of Southend-on-Sea-based independent mortgage broker, R3 Mortgages, said being a bank is not as easy as it seems: "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."

Publishers: Additional comments below. If you use any, or all, of this content for publication, please credit Newspage. For ease, all, or individual quotes, can be copied.

7 responses from the Newspage community

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Stephen Perkins
Managing Director at Yellow Brick Mortgages
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. 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.
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Platinum
Riz Malik
Independent Financial Adviser at R3 Wealth
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.
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Platinum
Ranald Mitchell
Director at Charwin Mortgages
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. Worst case, we could see a repeat of 2007 which could leave Metro Bank Northern Rocked.
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Graham Cox
Director at Bridging Hub
I hope Metro can weather their current troubles. 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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Samuel Mather-Holgate
Independent Financial Adviser at Mather and Murray Financial
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.
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Ian Hepworth
Director at Funding Solutions UK Limited
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.
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Gary Bush
Financial Adviser at MortgageShop.com
Like a lot of companies who cross over the pond, the journey can often be bumpy. Metro Bank, with its refreshing alternative to traditional UK banking, seemed to start off well but has become very vanilla in recent years. I hope that it manages to weather this storm and not fall by the wayside like fellow US counterpart Best Buys when they made a move on the UK. We need an alternative view from bankers.