Is Metro Bank in trouble? Why the share price is plummeting and what fundraising plans mean for customers
Metro announced today it is looking to raise £600m to boost its finances.
One of the UK’s biggest banks is reportedly in talks with investors about raising £250m in equity funding and refinancing £350m in debt to shore up its balance sheet.
The bank, which has around 2.7 million customers, said it was looking at a range of options including a combination of equity and debt, as well as possible possible £100m share sale.
But it stressed that “no decision has been made on whether to proceed with any of these options” and it remains “well positioned” for future growth.
As the bank goes through an tumultuous period, i examines the situation and how it could affect its customers and their cash.
Why the bank’s share price is plummeting?
The bank’s announcement spooked its investors and caused its share prices to plummet by more than 25 per cent this morning.
Shares in the company, which have already sunk more than 50 per cent down over the past month, fell by as much as 29 per cent early on Thursday.
As a result the bank temporarily halted its shares twice this morning, before being suspended due to the volatility of the market.
Due to the recent declines, Metro has been left with a market value of around £60m, compared with its peak of £3.5bn in 2018.
City regulators are reportedly in talks with the bank following the share price drop but the Bank of England‘s Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) both declined to comment.
Is Metro Bank in trouble?
In 2019, Metro said its commercial loan portfolio was far riskier than previously reported.
The announcement triggered a 39 per cent fall in its share price in a single day and led to the FCA slapping it with a £10m fine, as a punishment for “misleading investors”.
Earlier this year the bank earlier said it had worked on “fixing issues of the past while positioning itself for the future”, as it revealed it had made a profit over the first half of the year.
But there are some concerns from financial experts whether Metro will be able to raise enough cash to secure its future.
Gary Greenwood, an equity research analyst for Shore Capital Markets, said: “Metro Bank has been struggling for a number of years to establish itself as a profitable and self-sustaining bank.
“Supporting a further capital raise for this struggling bank would be akin to throwing good money after bad, in our view, as it has already had enough time and opportunity to sort itself out and has been unable to do so.”
He also said the bank has over-costed in recent years having put money into opening expensive branches it is narrowly operating within its minimum capital requirements, which could have helped prompt a possible fundraising drive.
What fundraising plans mean for customers
The bank has not announced that the fundraising plans will affect its customers, or said that it fears that it could collapse.
Banking insiders claim there is no risk to customer deposits and that the bank is in a strong position.
Cash held in any UK-regulated bank account is protected up to £85,000 per financial institution by the Financial Services Compensation Scheme (FSCS).
That means in the event that the bank is forced to dissolve, the FSCS would return any money held in the account within seven working days.
Additional reporting by Press Association
