Shares in challenger lender Metro Bank (MTRO) plunged more than 30% to a new all-time low of 34p in early trading after a press report suggested the company was looking to raise as much as £600 million in fresh funding.

That compares with a market capitalization as of last night of just £87 million, after the shares lost more than half their value this year.

CAPITAL REQUIREMENTS

Last month, Metro Bank released a statement saying its discussions with the Bank of England’s PRA (Prudential Regulatory Authority) to reduce the amount of risk-weighted assets it needs to hold against residential mortgages were inconclusive and approval ‘will not be attained during 2023’.

The PRA indicated to the bank that more work was needed on its part, leaving Metro to caution there was ‘no certainty that approval will be obtained’ and it had no visibility on ‘the timing of any approval or the level of any reduction in risk weighted assets and consequential reduction in regulatory capital requirements that might be achieved’.

The firm added it would ‘continue 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’.

This week, the Financial Times reported Metro Bank was ‘seeking to raise up to £600 million’ from investors through a combination of £250 million in equity funding and £350 million of debt ‘to shore up its balance sheet’.

The newspaper noted that ratings agency Fitch had put Metro Bank on ‘negative watch’ this week citing increased risks to its business model, capital position and funding of the company, as it expected the group’s earnings 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’.

Fitch also pointed to the £350 million of senior bonds which Metro needs to refinance at some point before October 2025.

WHAT DID THE BANK SAY?

In its response to what it termed press speculation, the firm admitted it was ‘evaluating the merits of a range of options, including a combination of equity issuance, debt issuance and /or refinancing and asset sales’ but said no decision had been made on whether to proceed with any of the options.

Meanwhile, it stressed it continued to meet its minimum regulatory capital requirements and that for three consecutive quarters ‘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’.

It's worth noting this isn’t the first time the bank has had a run-in with the PRA. In 2019, Metro was forced to admit its commercial loan portfolio was riskier than it had previously reported leading to a £10 million fine from the regulator and close to a 40% fall in its share price.

LEARN MORE ABOUT METRO BANK

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