Stay informed with free updates
Simply sign up to the Metro Bank myFT Digest — delivered directly to your inbox.
A group of Metro Bank bondholders contacted the UK lender’s board on Monday proposing a £600mn capital injection, but the company has yet to accept the offer, according to two people familiar with the matter.
The offer remains on the table and was acknowledged by Metro — the first of a wave of UK lenders founded to disrupt the established order in retail banking following the financial crisis — in a letter to the consortium on Friday morning, one of the people said.
The proposal came before Metro approached investors this week about a separate fundraising plan for a similar amount to shore up its balance sheet, triggering a week of turmoil for the bank.
Existing investors, who could lose money if the bank fails, are looking to bolster its capital position and avoid it running into difficulty.
The Metro bondholders, who are being represented by investment banking boutique PJT Partners, made the proposal after the bank announced in September an indefinite delay to UK regulatory approvals that would have significantly reduced the cost of its mortgage business.
Its share price halved in the weeks following the disclosure of the delay that meant that approvals for regulatory relief to reduce capital in its mortgage business would not come until at least 2024, and might not come at all.
The prospect that the bank might have to raise new funds sent Metro’s shares tumbling 26 per cent on Thursday. The stock recovered some of those losses on Friday, ending up 21 per cent, but remained lower over the week.
As scrutiny of the bank increased, Metro was put on watch by Fitch earlier this week, with the rating agency pointing to rising risks to the lender’s business model, capital position and funding.
On Wednesday, the Financial Times reported that the bank had hired Morgan Stanley as it sought to raise up to £600mn to shore up its balance sheet. Morgan Stanley was seeking interest from investors about raising £250mn in equity funding and £350mn in debt, with the bank under pressure to refinance £350mn of senior bonds by next October.
The offer from the bondholders matches this package, according to the people with knowledge of it.
Metro has hundreds of millions of pounds of debt that can convert into equity under so-called bail-in rules if the bank runs into trouble. It has to refinance £350mn of this debt by October 2024, when that bond can no longer be counted towards a capital buffer known as MREL.
On Thursday, Metro said it was considering a range of options, including a combination of equity and debt issuance, as well as refinancing and asset sales.
Metro, PJT, the Financial Conduct Authority and Prudential Regulation Authority all declined to comment on the bondholders’ proposal.
Metro has sounded out rivals, including Lloyds Banking Group, NatWest and HSBC, about buying a third of its mortgage book to help bolster its balance sheet.
Analysts cautioned that selling a part of its mortgage book may not be enough to address the bank’s problems.
An asset sale would “merely [kick] the can down the road and doesn’t address the fundamental issue that the bank is over-costed and lacks scale”, said Gary Greenwood, analyst at Shore Capital.
The bank said this week that it “continues to be well positioned for future growth,” pointing to its underlying profits for the past three quarters.
Read the full article here