Metro Bank, a “challenger” bank in the UK, has been facing challenges in recent years. It was set up in 2010 with the aim of doing things differently from traditional High Street lenders, offering customer-friendly perks like extended opening hours and pet-friendly amenities. However, the bank has struggled to achieve sustained profitability since an accounting scandal in 2019, which led to the departure of top executives, including founder Vernon Hill.
Recently, Metro Bank requested permission to use its own ratings system to value its mortgages and assets, which would have freed up cash for further business growth. However, regulators rejected the request, requiring the bank to use an external rating system instead. Reports emerged this week suggesting that Metro Bank is looking to raise money from investors and lenders, and may consider selling some of its mortgages before refinancing its debts.
The bank’s share price started to decline last month after the Bank of England denied its request to use internal measures to assess mortgage risks. Following the reports of potential fundraising, Metro Bank’s shares plummeted by as much as 30% on Thursday, reaching a low of about 34p per share. The share price recovered slightly on Friday, but the bank’s market value is now less than £100m, compared to its peak value of £3.5bn five years ago.
Analysts speculate that the reports of fundraising through share sales may have spooked investors. The lower the share price, the more shares Metro Bank needs to sell, resulting in a larger impact on existing shareholders. This situation can create a “vicious circle,” according to Russ Mould, investment director at AJ Bell.
Despite the challenges, Metro Bank maintains that it is in a strong financial position and meets all regulatory requirements. The Financial Services Compensation Scheme protects customer deposits up to £85,000, covering the majority of Metro Bank’s £15.5bn in customer deposits. While the bank may consider selling some of its mortgages to other banks, homeowners are not expected to experience immediate changes. Some customers may have their loans managed by another bank in the future.
Metro Bank is a publicly listed company on the London Stock Exchange, with shares sold to the public. Its largest shareholder is Spaldy Investments, holding a 9% stake in the bank.