Britain’s Metro Bank has announced a new $1.13 billion capital package that has been agreed upon with investors and bondholders. This comes after the bank’s share price recently experienced a significant drop due to concerns about its cash reserves. The new capital injection from shareholders, amounting to $396 million, along with the refinancing of $731 million in debt, will support the bank’s plans for future growth. Metro Bank aims to shift its focus towards specialist mortgages, commercial lending, and the expansion of deposits and current accounts. The announcement has generated optimism and excitement, with Metro Bank’s CEO, Daniel Frumkin, expressing confidence in the bank’s continuous profitability and its goal to become the leading community bank in the U.K. Frumkin also highlighted the importance of delivering both digital and physical banking services to meet customer expectations.
The market has responded positively to the news, with Metro Bank’s share price experiencing a rebound and trading at 71 cents. This reflects a 27% increase from Friday’s closing price. However, it’s worth noting that the current share price is still significantly lower than its peak earlier this year. The funding raise for Metro Bank was spearheaded by Colombian banker Jaime Gilinski Bacal through his vehicle, Spaldy Investments. Bacal’s investment of $124.3 million has increased his stake in the bank to 53%, making him the controlling shareholder.
In order to facilitate the debt restructuring, some bondholders will need to accept a reduction of 40% in the value of their bonds. This percentage could increase to 45% if a majority of the noteholders do not enter into lock-up agreements supporting the refinancing by the specified deadline. The debt restructuring is expected to boost Metro Bank’s Tier 1 capital by up to $122 million. In addition, the bank is currently in talks regarding the potential sale of $3.65 billion of its residential mortgage book. This move would reduce Metro Bank’s risk-weighted assets by $1.22 billion and enable the bank to reinvest the proceeds at a higher yield.
While the new capital package brings some relief for Metro Bank, industry insiders suggest that the bank’s troubles may not be fully resolved. There is speculation that one of the big four banks in the U.K. may eventually acquire Metro Bank. Former Barclays and Citi managing director Simon Samuels believes that Metro Bank’s costly business model, which heavily relies on physical branches in prime locations, poses significant challenges in the long run. Unlike other banks that are shifting towards online banking and closing branches, Metro Bank currently operates 76 offices and serves 2.7 million customers, with around $18.3 billion in deposits.
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