Metro Bank Secures £325 Million Rescue Deal Amidst Financial Challenge

Metro Bank is contemplating selling up to 40% of its mortgage portfolio to bolster its balance sheet and secure the capacity for continued expansion.

The bank founded in 2010 by American billionaire Vernon Hill, represents the first new High Street bank to emerge in the UK in over 150 years. It currently serves 2.7 million customers across 76 branches, primarily located in the south of England, and holds approximately £15.5 billion in UK customer deposits.

In a bid to bolster its financial position, Metro Bank, one of the UK’s high street lenders, has recently finalized a rescue package worth £325 million following intensive negotiations over the weekend. The bank had been under scrutiny due to concerns over its balance sheet.

The rescue deal includes a capital raise of £325 million, consisting of £150 million in fresh equity investments from shareholders and £600 million in debt refinancing. Leading this equity raise is Metro Bank’s largest shareholder, Colombian billionaire Jaime Gilinski Bacal’s Spaldy Investments, which is contributing £102 million. As a result, Bacal’s ownership stake in the bank will soar from 9% to a controlling 53%.

Metro Bank is also exploring the potential sale of up to £3 billion in residential mortgages. The Prudential Regulation Authority (PRA), the regulatory arm of the Bank of England, had reportedly approached several major banks, including NatWest and JP Morgan Chase, to gauge their interest in acquiring Metro Bank.

A spokesperson for the PRA welcomed Metro Bank’s efforts to strengthen its capital position, signaling approval of the bank’s moves to stabilize its financial standing.

Daniel Frumkin, Metro Bank’s CEO, expressed optimism about the future, stating, “Today’s announcement marks a new chapter for Metro Bank, facilitating the delivery of continued profitable growth over the coming years.”

Bacal emphasized his belief in the importance of physical and digital banking underscored by exceptional customer service, expressing confidence that the announced package will empower the bank to pursue growth.

JP Morgan Chase, after examining the possibility of acquiring Metro Bank in its entirety, ultimately decided against such a move. NatWest was also approached regarding the purchase of the entire business and is contemplating taking on Metro’s mortgage portfolio.

HSBC, Lloyds, and Santander UK were among the other institutions contacted as potential buyers for Metro Bank. EY, a consultancy firm, was engaged by the PRA to explore potential purchasers, with a focus on selling the entire business rather than its individual components.

Notably, digital-only rival Shawbrook Bank recently made an approach to Metro Bank in the weeks leading up to these developments.

The rescue plan comes on the heels of a challenging week for Metro Bank. Its shares tumbled by 25% shortly after the bank disclosed its consideration of raising hundreds of millions of pounds from investors. Nevertheless, the shares rebounded by 21% to reach 45.25p following reports of a £600 million capital injection offer from bondholders.

Metro Bank is contemplating selling up to 40% of its mortgage portfolio to bolster its balance sheet and secure the capacity for continued expansion. The bank founded in 2010 by American billionaire Vernon Hill, represents the first new High Street bank to emerge in the UK in over 150 years. It currently serves 2.7 million customers across 76 branches, primarily located in the south of England, and holds approximately £15.5 billion in UK customer deposits.

Victoria Scholar, Head of Investment at Interactive Investor, commented on Metro Bank’s financial difficulties, noting that the bank has experienced a significant decline in share price performance, down over 98% in the past five years.

In light of these recent developments, Metro Bank aims to restore market confidence and strengthen its financial foundation, setting a course for a more stable and sustainable future.