Metro Bank finalized a critical agreement on Sunday evening to bolster its faltering finances amid swirling rumours about its future prospects.
The London-based bank confirmed that it had orchestrated a £325m capital infusion and £600m of debt restructuring, all in a bid to finalize matters before the market’s Monday opening.
This came shortly after reports emerged of the Bank of England’s exploration into potential acquirers for the troubled bank.
Colombian magnate, Jaime Gilinski Bacal, 65, through his investment arm Spaldy Investments, is set to spearhead a £150m equity increase. With this, Spaldy, already a dominant investor in Metro, will elevate its ownership from 9.2% to a potential 53%, subjecting existing investors to significant dilution.
Shares in the equity increase are priced at 30p each, a steep drop from Friday’s 45.25pc. The stock has plummeted by over 65% from its peak earlier in the year.
The equity funding hinges on debt restructuring and procuring £175m of fresh regulatory capital. However, Metro is optimistic about finalizing these three components before year’s end.
This restructuring requires a regulatory green light, and it will push Metro’s interest obligations potentially to 14%. Certain bondholders might see a 40% reduction in value.
Concurrently, Metro is discussing offloading a £3bn segment of its mortgage portfolio to further solidify its position.
Dan Frumkin, the bank’s CEO, described this as the beginning of a “renewed phase” for the institution.
Mr. Gilinski Bacal, a prominent figure in Latin America’s wealthy echelon, expressed, “This newly unveiled strategy empowers the bank to chase growth, leveraging the foundational efforts of the past three years.”
Following the Bank of England’s outreach to potential Metro buyers over the weekend, mainstream banks were considering their options, especially after the enlistment of EY to identify a prospective buyer. This initiative came in light of Metro’s diminishing share value, stemming from concerns about its financial health.
Several banking titans, including Santander, NatWest Group, Lloyds Banking Group, HSBC, and JP Morgan, were tapped for a possible Metro acquisition. Santander even engaged Robey Warshaw, the niche investment bank where George Osborne is a partner, for Metro’s evaluation.
An insider revealed that the Bank of England’s Prudential Regulation Authority (PRA) was leaning towards a “complete acquisition of Metro,” elaborating, “While EY is directing enquiries, it’s the PRA that’s the puppet master.”
The Bank’s representative commented, “The PRA applauds Metro Bank’s initiatives to reinforce its capital standing.”
Metro boasts 2.7 million patrons and 76 UK outlets. For any accredited bank or financial entity’s downfall, the Financial Services Compensation Scheme (FSCS) ensures up to £85,000 in deposits.
Metro’s predicament initiated the prior month when the PRA communicated that it wouldn’t ease capital regulations on its mortgages, leading to a 50% reduction in its shares within weeks.
The situation intensified last week when Fitch, the credit ratings agency, put Metro Bank on a “negative” alert, indicating potential downgrades in the future.
The urgency was heightened due to the £350m debt that Metro was obligated to refinance by October 2024. This loan was linked to regulatory capital rules, and the inability to procure new funding would have meant Metro violating banking regulations.
The arrangement disclosed late Sunday extends the refinancing deadline for this regulatory capital to 2028.
Metro anticipates that the intricate refinancing and capital boost transaction will be finalized by year-end, contingent on requisite approvals.
Recently, The Telegraph reported that discussions were underway between the Treasury and officials at Threadneedle Street concerning Metro’s status.
Last Friday, details surfaced that a consortium of Metro’s bondholders had, the preceding Monday, proposed a £600m capital investment to the bank’s leadership.
Additionally, there were revelations that Metro had turned down multiple acquisition overtures from its British counterpart, Shawbrook, with a recent one just last month. As of Sunday evening, according to Bloomberg, Shawbrook remains keen on a potential merger.
Shareholders were bracing for a further decline in Metro’s stock value. The number of short positions, or wagers anticipating a stock price decrease, rocketed from 1.36% of the bank’s circulating shares to 9.55% within a month, as stated by Ortex analysts.
While the Treasury, EY, Lloyds, and JP Morgan chose not to comment, both Santander and NatWest were approached for their remarks.
