Metro Bank says its £350m fundraising is “well advanced”, which is not the same thing as being finalised, priced and ready to go. Indeed, the bank’s advisers have a slippery job on their hands given the speed of the descent in the share price. When Metro finally conceded in February that it would need fresh funds, its share price was £15. Now it is 475p, down 11% on Monday, valuing the lender at just £500m. A call for £350m of fresh equity at this point amounts to an appeal for a complete recapitalisation.
One assumes what Metro calls its “committed standby underwriting agreement” is watertight, because it’s the only piece of good news in this saga. In short, the underwriting banks – RBC Capital Markets, Jefferies and KBW – are on the hook if the shareholders turn wobbly. This service won’t be cheap, but it was plainly necessary.
As it happens, Metro says feedback from existing shareholders and potential new investors “continues to be positive”. OK, but would the mood improve if Vernon Hill, its idiosyncratic chairman and founder, agreed to spend more time with his Yorkshire terrier? Almost certainly, yes.
Hill must surely be trying the patience of even his US fanclub, as the local cause of this calamity for investors was a basic banking error – the allocation of £900m of property loans into the wrong risk-bracket, with a heavy knock-on effect on capital ratios.
A senior head would normally roll after such a self-inflicted blow. If chief executive Craig Donaldson is deemed too important to operations (for now), then a new outside chairman is a minimum requirement to improve boardroom credibility. The share price has fallen 88% in 14 months. To believe, as Hill apparently does, that the entire board can carry on regardless is ridiculous.
More bad news for Centrica investors
How to signal a dividend cut in the offing: announce a “strategic update” for July and say it will include “reflections on the current business portfolio” and cover “the group’s financial framework”. These are loaded phrases to use when, like British Gas owner Centrica, your shares yield a theoretical 12.5%. The only live debate in the City is whether the distribution to shareholders needs to be chopped by a third or a half.
The better news for investors was that Centrica expects to meet its cash flow and debt targets this year. But that’s as good as Monday’s trading statement got. A net 183,000 of household customers, or about 1% of the total, departed in the first four months of this year. The unwanted 20% stake in nuclear power group British Energy is still hanging around, delivering the usual news about outages. And Centrica doesn’t like warm weather or lower natural gas prices.
The company called these events a “perfect storm”, but many of the same pressures were present four years ago when chief executive Iain Conn unveiled his first strategic review. Even in those days, he used to grumble about falling energy prices and “the changing trends in demands and customer behaviour”. He was still able to conclude back then that, after a bracing 30% divi cut, Centrica could focus on delivering “increasing shareholder value in the next phase through both returns and growth”.
It hasn’t worked out that way, to put it mildly: the share price has slumped from 270p to 95p.
So why was Conn awarded a £776,000 bonus for 2018? The company’s laughable explanation, more or less, is that the shares managed to tread water at 135p-ish for the 12 months under review. Such heroically self-serving logic persuaded City fund managers to nod through the pay report with an 85% approval rating at Monday’s annual meeting. Baffling.
Trouble coming down the tracks for FirstGroup
Weeks of fun lie in prospect at rail and bus group FirstGroup now that US-based Coast Capital is waving its 10% stake in anger and aiming to defenestrate half the board. It even has Steven Norris, Tory transport minister of yesteryear and source of many entertaining headlines in the 1990s, lined up for appointment.
The timing of the assault is slightly odd, as FirstGroup will be unveiling full-year results at the end of this month. We’ll await the board’s case for the defence before passing judgment, but the irate Americans are asking one good question about rail franchising: if Stagecoach fears the government’s demands on pensions could be ruinous for operators, why is FirstGroup proceeding at full speed on the west coast?
The same question was asked in this column recently. FirstGroup has yet to provide an answer. It should.