ETRO Bank shares crashed 25% this morning as the City digested the latest blow to the lender – a plan to raise £600 million to shore up its finances.
The company had promised to change the face of banking when it launched in the UK in 2010, with new branches and a consumer-friendly face.
It worked at first, until an accounting error saw it miscategorise loans that saw CEO Craig Donaldson ousted.
Metro has asked Morgan Stanley to work on a capital raising deal for £250 million in fresh equity and £350 million in debt. The talks are just at an exploratory stage, say sources, who admit the bank needs more money.
The bank said: “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.”
The stock was down 12p to 38p which leaves the bank valued at just £66 million. The shares have lost 98% of their value in the last five years.
Fitch, the ratings agency, put Metro on negative credit watch yesterday. It 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.”
Back in 2019 Metro revealed that its loan portfolio was less stable than it had previously claimed. It was fined by the regulators then and has struggled to regain its standing in the City ever since.
Vernon Hill, the colourful founder, stepped down as chairman in October of 2019.
The bank won plaudits for modern, dog-friendly branches and claims of better customer service.
There is scepticism in the City about the merits of supporting the fund raising exercise.
A note from Gary Greenwood at Shore Capital titled “Throwing good money after bad?” read: “Metro Bank has been struggling for a number of years to establish itself as a profitable and self-sustaining bank. We understand the Group has explored a number of alternative solutions to resolve its woes but none to date, have been successfully executed.”
He added: “Supporting a further capital raise for this struggling bank would be akin to throwing good money after bad, in our view, as it has already had enough time and opportunity to sort itself out and has been unable to do so. Investors and bondholders may therefore be better served investing their money elsewhere.”
Metro Bank insists it has a future, noting that it has been profitable in the last three quarters. The bank says it has plenty for time to re-arrange its finances.
It said in a statement: “The Company is evaluating the merits of a range of options, including a combination of equity issuance, debt issuance and /or refinancing and asset sales. No decision has been made on whether to proceed with any of these options.”
While regulators are bound to be keeping a close eye on the bank, it says it “continues to meet its minimum regulatory capital requirements”.