As the leading challenger bank, Metro Bank invested heavily in maintaining a branch network, despite dramatic cutbacks by other banks. However, despite poor customer service over the years, it has proven difficult to attract customers away from established banks.
The Prudential Regulation Authority’s intervention indicates serious concerns about Metro Bank’s ongoing viability, according to analysts. Rising interest rates have put pressure on the bank’s finances, with £350m in debt coming due in October 2025. To address this, Metro Bank will need to refinance the debt or secure alternative funding. However, refinancing efforts are likely to be costly due to higher interest rates.
If the bank fails to raise cash, it may be forced to sell off parts of its bond portfolio. The value of these assets has decreased due to rising rates. If Metro Bank is pressured to offload these bonds before maturity, it could result in losses.
Silicon Valley Bank faced similar troubles after experiencing a $1.8bn loss on the sale of a portion of its bond portfolio, leading to its collapse in March.
Is my money safe?
Metro Bank assures its customers that their money is safe. However, if you have concerns about your finances, rest assured that your money is protected to a certain extent. Metro Bank is a UK regulated bank, and customer accounts are covered by the Financial Services Compensation Scheme (FSCS). The FSCS protects deposits up to £85,000 per individual, per financial institution. It also covers mortgages, insurance, and investments. In certain circumstances, such as temporary high balances resulting from house sales or inheritances, you may be covered for up to £1m for six months.
Gary Rycroft of solicitors Joseph A Jones & Co suggests withdrawing funds over £80,000 if your deposits exceed the FSCS limit, ensuring that the remaining funds are protected and have room to cover accruing interest.
What about my mortgage?
Metro Bank has reportedly approached Lloyds and Natwest about purchasing £3bn worth of its home loans. This move aims to strengthen Metro Bank’s balance sheet, and discussions with larger competitors are ongoing.
If you’re concerned about your mortgage, Karen Noye, a mortgage expert at Quilter, reassures homeowners that the UK’s regulatory structure safeguards customers in such circumstances. Usually, when a lender becomes insolvent, administrators try to sell its mortgage book to another lender. If this were to occur, your loan conditions, such as interest rates and payment amounts, would remain unchanged.
The FSCS may provide compensation in the worst-case scenario. If you’ve overpaid or have a valid claim against a defunct lender, the scheme may step in to offer compensation. However, note that the FSCS will not pay off a mortgage balance.
Ms Noye emphasizes that UK homeowners are well-protected by the nation’s financial regulations. She advises maintaining regular mortgage payments and staying informed.
Mr Rycroft adds that for now, customers with low fixed rates should remain with Metro Bank. In the event that the situation worsens, the mortgage business may be sold, but any fixed rates and deals currently in place should remain unchanged.
How will Metro raise the money it needs?
Metro Bank has released a statement stating that it is considering various options to raise funds, including selling shares, bonds, or assets such as mortgages. Will Howlett, an equity research analyst at investment manager Quilter Cheviot, acknowledges Metro Bank’s struggles in recent years but believes that it is well-positioned for future growth. The bank recently returned to profit in the first half of the year and expects continued momentum in account growth and customer acquisition.
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