Metro Bank, the first new high street lender in the UK in 150 years, has embarked on a significant financial overhaul following a substantial rescue package totaling £925 million. The bank, co-founded by US billionaire Vernon Hill and currently serving nearly three million customers, is responding to an array of challenges including accounting errors, leadership transitions, and regulatory approval delays.
On Monday, Metro Bank announced it had secured a refinancing package that includes a £325 million capital raise led by Spaldy Investments and £600 million debt refinancing. This will lead to material dilution as shares are issued at 30p. CEO Daniel Frumkin will contribute up to £2 million in the equity raise. Jaime Gilinski Bacal's Spaldy Investments, which advocates for physical and digital banking, will control a 53% stake in the bank after the capital increase.
This move comes after a 30% plunge in Metro Bank's share price. The capital increase aims to address regulators' concerns about maturing debt next year and extend the bank's debt maturity. Additionally, the bank is considering selling £3 billion worth of residential mortgages to reduce risk and raise capital levels.
The rescue deal was facilitated after hiring investment bankers and regulators prompting potential buyers. The bank aims for profitable growth and a return on tangible equity of over 9% in 2025.
In response to this strategic move, the market responded positively with a share surge of up to 22% following the announcement. However, this financial bolstering strategy is seen as a distressing rescue plan by Shore Capital's Gary Greenwood as it hands over majority shareholder control to Colombian billionaire Jaime Gilinski Bacal.
As part of its financial revamp, Metro Bank is also launching a cost-cutting drive that includes an annual cost reduction of about £30 million from 2025. The impact on its 4,000 employees remains uncertain.
The bank is also considering selling a significant portion of its mortgage book to meet its capital requirements and mitigate balance sheet risks. The potential sale comes amidst growing concerns over its financial health, which led customers to start withdrawing their funds. Despite this, Metro Bank anticipates growth in account balances backed by a loyal customer base.
The Financial Services Compensation Scheme (FSCS) has assured that customers' deposits are secure despite the bank's financial challenges. This assurance comes amidst ongoing discussions with the Bank of England's regulatory bodies about the bank's critical financial situation.
In the wake of these financial challenges, Metro Bank is working on a larger capital-raising strategy involving raising over £100 million in new equity and refinancing a £350 million debt instrument maturing in one year. The bank asserts it is meeting minimum cash requirements and no final decision has been reached yet.
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