Metro Bank Raises £325 Million in Capital and £600 Million in Debt Refinancing
Shares Surge as Metro Bank Secures Funding
Shares of the U.K.’s Metro Bank skyrocketed on Monday morning following the announcement that the bank had successfully raised £325 million ($395.6 million) in capital and secured £600 million in debt refinancing. The capital raise includes £150 million of new equity and £175 million of “MREL” issuance, a form of bail-in debt. Additionally, the bank will undergo a debt restructuring to extend the maturity of its borrowings, with holders of £250 million worth of tier 2 bonds taking a 40% haircut. Metro Bank’s shares soared by 25.5% in London trading.
Colombian Banker Becomes Controlling Shareholder
The capital raise was led by Colombian banker and real estate developer Jaime Gilinski Bacal, an existing shareholder through Spaldy Investments Limited, who contributed £102 million. As a result, Gilinski Bacal now holds a controlling stake of 53% in the bank. In a statement, he expressed his belief in the importance of physical and digital banking with a focus on exceptional customer service. He also stated that the funding package announced would enable the bank to pursue growth and build on its foundation of the past three years.
Expansion into Specialist Mortgages and Commercial Lending
Metro Bank intends to utilize the funds raised to shift its focus towards specialist mortgages and commercial lending, while continuing to grow its current accounts and raise deposits. The bank is also in discussions regarding the potential sale of up to £3 billion worth of residential mortgages. However, recent regulatory restrictions on the use of its internal risk models for mortgages have raised concerns among investors, as this would result in higher capital requirements.
Turbulent Times and Downgrades
Shares of Metro Bank experienced high volatility and closed 22.5% lower last week. The bank faced significant challenges in 2019 following a major accounting error, which led to the resignation of its founder and fines for its former CEO and CFO. Several ratings agencies and investment banks downgraded the bank’s stock amid the turbulence, with Stifel suggesting that it may require up to a billion in capital over the next two years. While the current capital package may not be the ideal outcome for shareholders and bondholders, it secures Metro Bank’s longevity as an independent institution.
John Cronin, head of financials research at Goodbody, noted that the current deal terms may require support from these parties, with bondholders taking a significant haircut and shareholders experiencing material dilution. However, given recent deposit outflows and the challenges of finding an alternative plan quickly, the deal may ultimately be accepted, even if some parties feel aggrieved.
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