Metro Bank bond sale failure raises concerns
(27 September 2019 – United Kingdom) Metro Bank failed to raise a much needed capital injection of £250 million by issuing non-preferred bonds despite attempting to attract bidders with an interest rate of 7.5 percent - double the rate of matching bond offerings.
The failed bond sale added to investor and customer concerns following the group’s misreporting scandal in January. A £375 million share issue in May provided enough funding to cover the group’s capital requirements, however confidence is wearing thin.
Metro Bank only attracted £175 million worth of orders, prompting the embattled lender to abandon the bond sale. The group’s share fell 35 percent last week to become the second most shorted stock on the FTSE all shares index behind collapsed travel operator Thomas Cook.
Metro Bank, one of the new wave of challenger banks aimed at increasing competition in the heavily concentrated United Kingdom (UK) retail banking market, launched in 2010 as the UK’s first new high street bank in over a century. Despite the ‘Big Five’ controlling a staggering 85 percent market share, Metro Bank successfully won over disillusioned clients from the majors early on by offering improved customer service and longer opening hours. A large part of its attraction was its focus on branches while the incumbents were rapidly reducing their bricks and mortar presence. Metro Bank achieved exceptional growth and was awarded for best of breed customer satisfaction.
Metro Bank suffered a minor bank run at several London branches three months ago as institutional clients withdrew £2 billion of deposits in H1 2019 however last week’s bond prospectus showed it recovered much of that over the summer, The lender reported an 80 percent drop in pre-tax profits for H1 2019 and then disclosed that a Financial Conduct Authority (FCA) investigation into the bank’s mis-categorisation of risk-weighted assets (RWA) had been widened to include ‘certain senior members of management’. Speculation is mounting that Metro could end up being acquired by one of the majors.
“Not being able to get a senior unsecured issue away at 7.5 percent when rates are so low is pretty staggering. To not get it away just reflects the lack of confidence in the ability of the business to turn a profit and maintain a sufficient capital base into the long term. We wouldn’t be surprised to see Metro cornered into a sale in the relative near-term, especially if it suffered a further decline in deposits” stated Goodbody analyst John Cronin.
“Given the current market conditions Metro Bank has decided to not proceed with a transaction at this time. Metro Bank has a strong capital position and therefore the flexibility to raise new capital at the right time between now and the end of the calendar year” Metro Bank said in a statement.
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