Metro Bank has launched a £350m fundraising that is expected to strengthen its balance sheet and quash rumours about its financial health that caused customers to pull cash last weekend.
The challenger bank confirmed it was offering shares at a price of £5 each, slightly cheaper than its closing price of £5.36 on Thursday. It is at a steep discount to the £22 per share that investors would have paid before the bank revealed a mmajor accounting mistake in January.
Metro said said it expected to complete the fundraising by Friday afternoon and that its “capital position will be strengthened” by the extra cash, helping it to grow its loans book. The funds will also be used to invest in new branches and technology.
The lender has been feeling pressure from low interest rates, tough competition and regulatory requirements, it said.
The bank has been grappling with a cocktail of bad news since it announced it had miscategorised £900m worth of commercial and buy-to-let property loans as being lower risk than they actually were.
Banks are required to put aside more capital to cover their riskier products in order to ensure they are protected in the event of a sudden downturn. Metro’s mistake prompted investigations by the Financial Conduct Authority and the Prudential Regulation Authority.
The bank then spooked markets in February, when it announced plans to raise the £350m in fresh funding despite ruling out further cash calls last summer when it raised £300m from investors.
That was followed by disappointing first quarter results, which included a 50% drop in profits, and news that some large business customers had pulled funds after the accounting blunder.
The run of negative headlines led to rumours circulating on social media about Metro’s financial strength.
One message on WhatsApp urged anyone with a Metro account or safety deposit box to “empty [them] as soon as possible”, claiming the lender was facing financial difficulties and may be “shut down … or going bankrupt”.
While Metro said the messages amounted to “false rumours”, the panic caused customers to queue up at least six branches in west London last weekend, with most trying to access jewellery, documents and gold stored in safety deposit boxes.
Metro confirmed on Thursday that customers also pulled cash, but did not say how much. “As may have been expected, Metro Bank experienced a short period of deposit net outflows following the intense press speculation between 10 and 13 May 2019,” it said in its fundraising statement. “The position is stabilising.”
Metro shares are down more than 75% since the accounting mistake was revealed in January. Its second largest shareholder, Fidelity, recently cut its stake by a third.
The next flashpoint for the bank will be its annual shareholder meeting in London on Tuesday. The shareholder advisory firm Glass Lewis has advised investors to vote against the re-election of Metro’s founder and chairman, Vernon Hill.
Fellow advisory firm ISS has also urged shareholders to reject the lender’s pay report and abstain from voting to re-elect Hill and the chief executive, Craig Donaldson.
Donaldson has given up his £800,000 bonus over the accounting error, but so far no senior executives or board members have been shown the door.
It is the second straight year Metro has faced a shareholder revolt. Last year, the lender avoided a rebellion over multimillion pound payments to the architecture business of Shirley Hill, the wife of the bank’s chairman.
Vernon Hill plans to prop up the fundraising efforts by buying up to £5m worth of shares. Donaldson is also expected to commit £350,000.