Shareholders and short-sellers are preparing for an imminent placing of Metro Bank (MTRO) shares, as the high-street lender attempts to improve its capital levels and contain the widening fall-out from a regulatory reporting scandal.
Citing positive feedback from new and existing investors, the bank confirmed that a long-trailed £350m fundraising was “well-advanced”, and should complete by the end of June. At the start of this month, Metro merely committed to “launch” the placing this quarter, suggesting heightened urgency in the hunt to boost capital, even as it continues to be billed as growth-oriented.
In another sign of that urgency, Metro Bank confirmed it is exploring the sale of a £1bn book of commercial and buy-to-let property mortgages, as another option to improve its cash buffers. Earlier this year, a reclassification of the riskiness of those loans, prompted by a regulatory review, shocked investors and the banking sector. By March, Metro’s common equity tier-one ratio – a key measure of its financial strength – had dropped to just above management’s 12 per cent minimum target.
A sale or securitisation of these loans – which a bank spokesperson stressed was just “one option”, and had not been determined – could in theory reverse the decline in capital adequacy ratios, but would raise further questions of the group’s net interest margins and high-growth expansion strategy.
Efforts to boost the coffers have also been given fresh impetus after reports of queues of concerned customers at several branches sparked fears of deposit withdrawals.
“We’re aware there were increased queries in some stores about safe deposit boxes following false rumours about Metro Bank on social media and messaging apps,” a bank spokesperson said. “There is no truth to these rumours and we want to reassure our customers that there is no reason to be concerned.”
But this development creates a torrid backdrop for the fundraising, which is subject to shareholder approval and will only respect existing investors’ rights “as far as practicable”. Although the placing has been given so-called “standby” status by underwriters Jefferies, KBW and RBC – meaning a raise is assured – there is no clarity on the price at which investors are now prepared to pay for Metro Bank equity. A spokesperson declined to comment on one report which suggested the raise could come “at, or potentially above” the market price.
Either way, new and existing investors will be unnerved by the sudden burst of social media-fuelled rumour over safe deposit boxes, particularly after withdrawals by larger corporate customers caused deposits to decline 4 per cent in the first quarter of 2019. While the Financial Services Compensation Scheme protects individual cash deposits of up to £85,000, corporate clients make up 52 per cent of Metro’s £15.1bn of deposits, and are unlikely to prove as “sticky” as their retail customer counterparts.
Regardless, and even assuming April’s return to net deposit inflows continues, a target to grow deposits by 20 per cent this year looks a stretch.
Shares in the embattled group fell on news of the imminent placing, and are down 72 per cent so far this year, making them the worst-performing banking stock globally, according to data from Market Screener.
