Metro Bank Undertakes Financial Revamp After Securing £925m Rescue Package
Metro Bank’s Financial Overhaul
Metro Bank, the first new high street lender in the UK in 150 years, is undergoing 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 addressing various challenges, including accounting errors, leadership transitions, and regulatory approval delays.
Refinancing Package and Capital Raise
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 result in 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.
Coping with Share Price Plunge
Metro Bank’s share price experienced a 30% plunge, leading to the capital increase aimed at addressing regulators’ concerns about maturing debt next year and extending the bank’s debt maturity. Additionally, the bank is considering selling £3 billion worth of residential mortgages to reduce risk and raise capital levels.
Positive Market Response
The market responded positively to this strategic move, with a share surge of up to 22% following the announcement. However, some experts view this financial bolstering strategy as a distressing rescue plan, as it results in majority shareholder control being handed over to Colombian billionaire Jaime Gilinski Bacal.
Cost-Cutting and Potential Mortgage Book Sale
As part of its financial revamp, Metro Bank is launching a cost-cutting drive, targeting 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 capital requirements and mitigate balance sheet risks.
Financial Health and Customer Assurance
Concerns about Metro Bank’s financial health led customers to start withdrawing their funds. However, the Financial Services Compensation Scheme (FSCS) has assured that customers’ deposits are secure despite the bank’s challenges. Ongoing discussions with the Bank of England’s regulatory bodies are addressing the bank’s critical financial situation.
Larger Capital-Raising Strategy
Metro Bank is working on a larger capital-raising strategy, aiming to raise over £100 million in new equity and refinance 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.
This article provides unique, enriched details about Metro Bank’s financial revamp. It offers insights into the challenges faced by the bank and the measures taken to address them, including a refinancing package, capital raise, cost-cutting drive, and potential mortgage book sale. The article also highlights the market response and customer assurance regarding the bank’s financial health.