Metro Bank Holdings PLC is seeking to raise up to £600 million after its share price fell almost 50% in recent weeks, the Financial Times reported, citing people with knowledge of the plan.

The UK challenger bank is in talks with investors about raising £250 million in equity funding and £350 million in debt to shore up its balance sheet, the report said.

https://www.ft.com/content/3532195d-4153-4566-8fab-a719457ffff9

The talks came after regulators last month failed to approve a request from Metro to lower the capital requirements attached to its mortgage business.

Metro told the FT: ‘As previously stated, Metro Bank continues to consider how best to optimise its capital resources to allow it to take advantage of the deposit and asset origination platform that has been built.’

Metro has hired Morgan Stanley to provide strategic advice and lead any potential capital raise, said a person familiar with the decision, the FT report said.

Rating agency Fitch earlier Wednesday put Metro on negative watch, citing increased risks to its business model, capital position and funding of the company.

Fitch said: ‘We expect the group’s earnings prospects to come under pressure in the short term due to rising funding costs, resulting from higher competition for deposits and given likely more expensive access to wholesale funding. In addition, capitalisation is tight.’

Fitch also called attention to the £350 million of senior bonds that Metro must refinance by next October.

Last month, Metro announced it had not received permission from regulators to change the way it calculated the capital requirements on its mortgage book.

That change would have improved the bank’s capital position and made it more profitable. At the time, Metro said that while it ‘continued to engage with the PRA on its application, there is no certainty that approval will be obtained’.

Shares in Metro Bank closed down 5.2% at 49.50 pence, valuing the firm at around £85 million. In 2018, the bank was valued at around £3.5 billion.

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