Crunch time for Metro Bank as share price crashes

Metro Bank insists it within its capital requirements to operate as a bank, but is weighing up refinancing options.

Shares were trading as low as 35p on Thursday, triggering a suspension by the London Stock Exchange.

Ratings agency Fitch gave the bank a “negative watch” rating on Wednesday, which caused market jitters over the bank’s overall business model and the strength of its balance sheet.

Treasury officials have also held crisis talks with the Bank of England, according to some media reports.

In a statement to the stock market the bank said: “Metro Bank notes the recent press speculation regarding a potential capital raise. Following Metro Bank’s update on capital planning on 12 September 2023, the company continues to consider how best to enhance its capital resources, with particular regard to the £350m senior non-preferred notes due in October 2025. The company continues to meet its minimum regulatory capital requirements and had a total capital plus MREL ratio of 18.1% and a leverage ratio of 4.4% as at 30 June 2023.”

The statement continues with an admission of the ongoing process, but said no decision has been made.

“The company is evaluating the merits of a range of options, including a combination of equity issuance, debt issuance and /or refinancing and asset sales. No decision has been made on whether to proceed with any of these options,” the statement said.

It has also been reported by the FT that the Financial Conduct Authority has called the bank in for urgent talks.

Neither the FCA or the bank have confirmed this.

“For three consecutive quarters ended 30 June 2023, the bank has been profitable on an underlying basis, and it expects the Q3 trading update to show continued momentum in Personal and Business Current Account growth and customer acquisition, in line with expectations. Metro Bank continues to be well positioned for future growth,” it added.

Founded by American billionaire Vernon Hill in 2010 Metro Bank has often been touted as a customer friendly challenger to the big four clearing banks in the UK. It holds £15.5bn in UK customer deposits and boasts 2.8 million customer accounts which it operates through a network of 76 ‘stores’ across the UK, including Liverpool, Manchester, Bradford, Leicester, Northampton, Sheffield, Merry Hill, Birmingham, Wolverhampton Swindon, Bath, and Bristol.

But Russ Mould, investment director at AJ Bell asked if the problems amounted to this being the end of the age of the challenger bank?

“Metro as an individual institution is certainly being pushed into existential territory with the shares now at all-time lows.

“As ever when something goes wrong in the banking sector, there will be concern about contagion risks but, in truth, Metro Bank has been struggling for years to get on a path to sustained profitability and has made lots of mistakes – notably a big accounting scandal in 2019.

“Metro was a bastion of the attempted disruption of the high street banking sector coming out of the financial crisis – becoming the first new name in that sector for more than a century at its launch in 2010.

“Winning attention for initiatives like offering water bowls for customers’ dogs and other little touches, it seems Metro was rather less adept at the nuts and bolts of banking itself. The key question is will it find enough backers should it conduct a fundraise?

“Existing creditors and investors may feel they have no choice but to participate, though they are unlikely to do so with any great enthusiasm.”