Metro Bank was forced to complete a long-awaited share placement at a discount on Thursday evening but raised more money that it had planned after a positive reaction from investors.
The under-fire lender initially said it would raise around £350m after London markets closed to prop up its capital levels and allow it to return to lending growth after the discovery of a reporting error earlier this year.
However, Metro later increased the total sum raised to £375m, due to high demand. There were around £1bn worth of orders for the new stock.
People briefed on discussions said a large portion of the cash would be provided by existing investors, though Fidelity, which was until recently Metro’s second-largest shareholder, was not expected to take part.
Craig Donaldson, chief executive of Metro, has been discussing the deal with investors in New York this week, although some new Europe-based investors will also buy shares.
The new stock was priced at 500p a share. The price was around 6 per cent lower than Metro’s volume-weighted average share price over the past week, and 13 per cent lower than the price when the Financial Times first reported the placing would be completed at a discount on Thursday afternoon.
The discount contrasts with the bank’s previous capital raises, which it was able to complete at market prices with the promise of rapid future growth. However, Metro’s plans have been severely disrupted by the revelation that it had been miscategorising the riskiness of certain loans and as a result had less capital than it should have had.
The bank first announced the plan to raise £350m alongside its full-year results in February, when it also said it would scale back the pace of its expansion and focus on making more efficient use of its capital.
Its common equity tier one ratio, a key measure of balance sheet strength, fell to 12.1 per cent at the end of the first quarter, barely above its self-imposed minimum of 12 per cent. After the placing, its CET1 ratio would be 15.6 per cent, which it said would “allow it to further grow its loan balances and [risk-weighted assets], while investing in the expansion of stores and new technologies”.
Metro has lost about two-thirds of its market value since the start of the year. Shares hit a record low of £4.75 on Monday after false rumours on social media about its financial position spooked some customers, but the stock later picked up on hopes the equity raise was nearing completion.
The lender noted that “intense press speculation” surrounding the weekend’s rumours had prompted a “short period” of outflows but said the position was now “stabilising”. Despite that temporary hit, the bank reiterated its full-year forecasts alongside the announcement of the capital raise.
RBC Capital Markets, Jefferies and KBW managed the accelerated book-build, and shareholders will be asked to approve the transaction at a special general meeting on June 3.