UK: Metro Bank Reaches Rescue Deal to Boost Finances

Facts

• The UK's Metro Bank has reportedly secured £925M ($1.13B) in funding to fix balance-sheet issues, though investors and bondholders will still face a cut on their investments. The rescue deal includes £325M in capital as well as £600M of debt refinancing.¹
• Metro, which became the first new British bank in over 100 years when it was founded in 2010, has also stated it may raise funds by selling up to £3B of its residential mortgages.²
• The bank, co-founded by US billionaire Vernon Hill, will now come under the control of Colombian billionaire Jaime Gilinski Bacal, whose investment firm Spaldy offered £102M to bring its stake in the bank from 9% to 53%. Metro's CEO Dan Frumkin will also put up £2M and CFO James Hopkinson will buy £60K worth of shares.³
• The shares in the equity raise will be priced at 30 pence (roughly 36 US cents) per share, a discount from Friday's closing price of 45 pence. Bondholders will also face a hit — with holders of a £250M Tier-2 bonds facing a 40% cut — before being switched into higher interest-paying bonds.⁴
• Metro has faced a series of recent setbacks, including accounting errors, executive departures, and delayed regulatory approval for capital reliefs. Though its stock is down 97% since it first listed on the London Stock Exchange in 2016, its shares were up 26% to 56 pence in the wake of the deal.⁴
• The bank first experienced trouble following an accounting scandal in 2019. After failing to convince regulators that it could be trusted to hold less cash than the worth of its Mortgage in September 2022, its stock dropped 50% in the following weeks.³

Sources: ¹Wall Street Journal, ²BBC News, ³Guardian and ⁴Reuters.

Narratives

• Narrative A, as provided by Wall street journal. Despite growing worries in the wake of other bank failures such as Silicon Valley Bank, it should be noted that Metro's woes seem to have been self-induced by excessive business costs and an inefficient balance sheet. With the stocks and bonds of larger banks seeing little change, there is no real worry in the market of a contagious problem within the banking sector. Metro tried to compete with established institutions including Barclays and NatWest, but its attempt to attract customers solely through strong customer service simply failed to pan out.
• Narrative B, as provided by CNN. Blame cannot solely be placed on Metro Bank’s unique customer base, strategy, and corporate culture — it must also fall on UK regulators who failed to catch issues in time to stop the bank from collapsing. Banks like Metro, Credit Suisse, and Silicon Valley, who have been clear outliers compared the likes of Lloyds, HSBC, and Barclays, must be more closely monitored from here on out, otherwise more customers will face financial distress.

Predictions