Metro Bank’s Share Price Crashes: Is the Bank’s Consumer-Friendly Image in Peril?
Metro Bank’s stock dropped 25% this morning as the City processed the lender’s latest setback: a request to raise £600 million to shore up its finances.
When the company launched in the United Kingdom in 2010, it pledged to alter the face of banking by introducing new consumer-friendly branches.
It worked at first, until an accounting error saw it miscategorize loans that saw CEO Craig Donaldson ousted.
Morgan Stanley has been tasked with negotiating a capital-raising agreement for £250 million in new equity and £350 million in debt on behalf of Metro. According to sources, the discussions are still in the exploratory phase and the bank requires more money.
The bank stated, “As previously stated, Metro Bank continues to evaluate how to optimize its capital resources in order to capitalize on the built deposit and asset origination platform.”
The stock fell 12 pence to 38 pence, reducing the bank’s value to £66 million. The value of the stock has decreased by 98% over the past five years.
In 2019, Metro disclosed that its loan portfolio was less stable than it had asserted previously. Since then, it has struggled to regain its stature in the city after receiving a sanction from the authorities.
The colorful progenitor, Vernon Hill, resigned as chairman in October of 2019.
The bank received praise for its dog-friendly, dog-friendly branches and claims of improved customer service.
The city is skeptical about the benefits of supporting the fund-raising effort.
Gary Greenwood of Shore Capital wrote in a note titled “Throwing good money after bad?” that “Metro Bank has struggled for years to establish itself as a profitable and self-sustaining bank. “As far as we are aware, the group has explored a number of alternative approaches to resolving its problems, but none have been successful to date.”
He added, “Supporting a further capital raise for this struggling bank would be tantamount to throwing good money after bad, in our opinion, as it has had ample time and opportunity to rectify its situation but has failed to do so.” Therefore, investors and bondholders may be better off investing their funds elsewhere.”
Metro Bank maintains it has a bright future, citing its profitability over the past three quarters. The bank claims it has ample time to restructure its finances.
It said in a statement, “The company is evaluating a variety of options, including a combination of equity issuance, debt issuance, and/or refinancing and asset sales.” No decision has been made regarding the implementation of any of these options.”
The bank asserts that it “continues to meet its minimum regulatory capital requirements” despite the fact that regulators are undoubtedly keeping a close watch on its operations.
Yesterday, Fitch, a ratings agency, placed Metro on negative credit watch. It stated, “We anticipate that the group’s short-term earnings prospects will be impacted by rising funding costs, as a consequence of increased competition for deposits and presumably more expensive access to wholesale funding. Additionally, the capitalization is precise.”
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