Metro Bank agrees €1bn financing package with investors

Metro Bank has struck a financing deal with investors after a weekend of negotiations that should give the UK challenger bank some breathing space and fill a capital hole that had prompted talks with regulators.

The package agreed with investors and announced on Sunday night includes a £325 million (€376 million) capital raise, split between £150 million of fresh equity from Metro’s largest shareholders and £175 million of new debt from bondholders.

Metro’s biggest shareholder – Colombian billionaire Jaime Gilinski Bacal – is due to contribute £102 million of the new equity.

He is set to become Metro’s majority shareholder. The deal is expected to give ultimate control of the bank to Mr Gilinski Bacal, who has a track record in Latin America of buying banking assets cheaply and turning them into acquisition vehicles.

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Metro’s financing package also includes £600 million of debt refinancing, which will involve holders of Metro’s riskier Tier 2 bonds taking a 40 to 45 per cent haircut on their investments.

In a statement, Metro Bank chief executive Dan Frumkin said the package “marks a new chapter” for the lender.

Mr Gilinski Bacal added: “I believe that the package... enables the bank to pursue growth and build on the foundational work undertaken over the past three years.”

Metro’s board has been locked in talks with investors about the capital injection and has also been gauging interest from some of the UK’s largest banks about certain of its assets. The Bank of England had contacted lenders to see if they were interested in buying Metro.

The Financial Times reported on Sunday that NatWest, Santander and Lloyds Banking Group were all considering bids for some of the bank’s assets.

Launched in the UK in 2010, Metro has grown to 2.8 million customers and has £21.7 billion in assets, according to its most recent accounts.

It has become well known for its quirky customer service, but its stock market valuation slid after a serious accounting error in 2019.

Its problems deepened last month when UK regulators declined to give Metro the green light on a change that would have lowered the capital requirements on its mortgage book, and thereby boosted the bank’s profitability.

In addition to the financing package, Metro said it was in discussions about selling off as much as £3 billion in residential mortgages. This exercise would be expected to improve the bank’s capital ratio, reducing its risk-weighted assets by around £1 billion.

Metro expects to publish a prospectus and shareholder circular in the coming weeks and complete the financing deal in the fourth quarter.

It said the capital injection would mean its common equity tier 1 ratio – a measure of its financial strength – would go above 13 per cent. This would comfortably exceed regulatory requirements.

The stock issued as part of the equity raise will be priced at 30p per share, a discount to its 45p closing price on Friday, and current shareholders will be materially diluted, said Metro.

The bank disclosed that Mr Frumkin is investing up to £2 million in the equity raise, but even though it has been classed as a related-party transaction, the size of his commitment is too small to warrant approval from other shareholders.

Regulatory approvals for Metro’s financing deal include a detailed change of control assessment by the Bank of England’s prudential regulation authority (PRA). This reflects how Mr Gilinski Bacal’s Spaldy investment vehicle will own more than 50 per cent of Metro’s shares after the agreement takes effect.

The PRA said it welcomed “the steps taken by Metro Bank to strengthen its capital position”. The Financial Conduct Authority, which co-regulates Metro with the PRA, will also run the rule over the financing deal. – Copyright The Financial Times Limited 2023