Metro Bank shelves £200m bond issue
New blow for troubled lender as it tries to raise funds
METRO Bank has been dealt another blow after having to shelve a £200m fundraising due to a lack of demand from investors.
The High Street lender, which was rocked by an accounting scandal earlier this year, last night announced it had pulled the bond issue after receiving just £175m worth of commitments.
This was despite the bonds offering a generous 7.5pc yield to investors – much more than other UK banks have recently paid out, at a time when bond yields are stubbornly low.
The pressure is now on for Metro Bank, which is also looking for a chairman, to raise the funds so that it can meet EU regulations known as MREL by the deadline of January 1 2020.
MREL requires banks to hold an extra buffer of money so that in the event of a financial crisis they could run down in an orderly fashion rather than just collapsing.
Metro – founded by American businessman Vernon Hill ( pictured) in 2010 – was hoping to raise between £200m and £250m through the bonds, but investors have backed away from the bank after an accounting scandal revealed it had misclassified the riskiness of some of its loans.
It launched the bond issuance yesterday morning, but by midafternoon it had bagged just £175m of orders.
The senior unsecured bonds would have been more exposed to losses in a crisis than conventional senior bonds, but would still rank ahead of the rest of the bank’s capital. This would mean the bondholders would be paid out before shareholders and other lower-ranked creditors if the lender was liquidated.
Just last week Barclays and Nationwide were able to raise lower-ranked bonds which were offering a less attractive yield.
Barclays raised £1bn through bonds with a yield of 6.4pc after receiving more than £7.5bn of orders, while Nationwide raised £600m on a yield of 5.9pc.
John Cronin, an analyst at Goodbody, said: ‘Not being able to get a senior unsecured issue away at 7.5pc when rates are so low is pretty staggering – it reflects the lack of confidence in the ability of the business to turn a profit and maintain a sufficient capital base into the long term.
‘This is not a good outcome for Metro Bank. While I appreciate market conditions are not at their most receptive, this is not a good omen in the context of the bank’s ability to meet its interim MREL requirement.’
A spokesman for the lender said: ‘Metro Bank thanks the broad number of investors who have met with the company and shown interest in its potential inaugural MREL issuance.
‘Given the current market conditions, Metro Bank has decided to not proceed with a transaction at this time. Metro Bank has a strong capital position and therefore the flexibility to raise MREL at the right time for the bank.’
Metro, which is known on the High Street for its neon lights and monochrome tiled floors, launched in 2010 with a promise to revolutionise UK banking. But it is now being investigated by the Financial Conduct Authority over its accounting mishap.