More woe for Metro Bank as shares slump
METRO Bank was reeling yesterday as shares crashed by a third to an all-time low.
The sell-off, which was triggered by a failed fundraising on Monday, has fuelled speculation that it may have to find a buyer.
Investors have turned against the High Street lender after an accounting error in January, since when its shares have plunged 90pc.
Yesterday’s dive was caused by the shock decision to pull a £200m fundraising in the bond market due to lack of demand from investors.
Just £175m of commitments were made. Metro needs to raise the money to meet EU regulations by January 1, requiring banks to issue a special type of bond that can be used to prop up banks during times of crisis.
Metro, which has around 2m customers, said on Monday the fundraising flop did not affect its financial strength and stressed its capital position was ‘strong’.
The brand is popular with customers – it was joint top with First Direct in ratings last month – but unloved by big City investors.
Most of its 70 branches are in London and the South East, but it plans to open more across the country, including in Manchester, Liverpool and Wolverhampton by the end of the year.
Founded by American entrepreneur Vernon Hill in 2010, Metro sets itself apart from other new banks by having vast shiny branches rather than being purely digital.
John Cronin, analyst at Goodbody, said that ‘after another day of pain’ the answer could be a sale of the bank.
He said that the fact that the bank could not raise the funds ‘has to call into question the risks to Metro Bank’s future as an independent entity’. ‘We suspect that a third-party sale would achieve the best outcome for equity holders and debt holders and we expect Metro will effectively be cornered into this before the end of 2020,’ said Cronin. He suggested Royal Bank of Scotland, Lloyds or HSBC could be suitors. Metro did not comment beyond a statement to the stock market in which it thanked the ‘broad number of investors who have met with the company and shown interest’ in the fundraising.
Ian Gordon, banks analyst at Investec, said: ‘They haven’t yet communicated a Plan B or C. One would like to think they are working on one.’
Shares were 175p yesterday, down from 2200p before the accounting problems were revealed. At their peak in 2018 the price was 4000p.
Lloyd Harris, a portfolio manager at Merian Global Investors, said he would not be surprised if the Bank of England gave the bank some leeway on the fundraising. It raised £375m from shareholders at 500p a share as recently as May and Harris said: ‘I still think the bank is in good shape from a balance sheet perspective – it is just being undone by the rules.’
Some big hedge funds have taken ‘short’ positions in the shares which means they hope to profit from share price falls. Metro has already told investors it is seeking a new chairman to replace Hill, whose wife Shirley has an interior design business which has been used to kit out Metro branches.