Cautious upswing in Metro Bank’s share price: This is what customers need to know

Metro Bank shares partially recovered on Friday morning after plunging to all-time lows following concerns about its balance sheet.

Shares plunged after reports that Metro Bank was exploring options to raise up to £600 million, forcing the bank to confirm it was considering options such as issuing new shares, securing new loans and selling assets into consideration.

The rating agency Fitch also downgraded the bank to “negative”.

Metro Bank, which traded at £20 a share in 2016, fell as much as 32 per cent on Thursday, ending the day at 37.5p, with a valuation of less than £65m.

After a turbulent day, Metro Bank shares are cautiously recovering this morning

But on Friday morning the bank recovered 15 per cent of its value to 43.1p, boosted by reports from Sky News that the lender had begun talks about a £3bn sale of its mortgage book.

Yesterday afternoon it emerged that Metro Bank chairman Robert Sharpe had been invited to a meeting with officials from the Prudential Regulation Authority and the Bank of England’s Financial Conduct Authority, the Financial Times reported.

But Metro Bank, whose bonds were also sold, making the cost of repaying the debt more expensive, later insisted it was a “long-planned meeting.”

Metro Bank is expected to refinance £350 million of its debt by October 2024. And reports suggest it could also consider a £100m capital increase – although the Financial Times suggested it could be up to £250m.

But Victoria Scholar, head of investments at stockbroker Interactive Investor, said this was not the first time the shadow of financial trouble had hung over Metro Bank, whose share price had fallen by around 98 percent in the last five years.

She said: After going public in 2016 at a price of £20 per share, the stock initially enjoyed a great show of confidence from investors, rising to around £40 by 2018.

“However, since then it has been largely downhill for the shares, which now trade at just around 40p, reflecting the lack of confidence and balance sheet issues.”

“After the US mid-market banking crisis and the forced rescue deal for Credit Suisse earlier this year, Metro is another cause for concern in the industry.”

“However, it is a problem unique to the bank itself, rather than an industry-wide problem. “But it shows how difficult it is for a challenger bank to compete with the long-dominant heavyweight lenders.”

What is Metro Bank?

Founded in 2010 by Anthony Thomson and Vernon Hill, Metro Bank was the first new major bank in over 150 years.

The commercial and retail bank experienced rapid growth in its early days, starting with its first branch in Holborn, central London. The plan was to open 200 locations by 2020.

Metro Bank differentiated itself from established high street competitors and gained attention through consumer-friendly initiatives such as offering pet water bowls in its branches.

The company offers a wide range of banking services, including savings and current accounts, fixed deposits, mutual funds, home loans, car loans, debit, credit and prepaid cards, as well as SME and corporate loans.

Metro Bank has around 2.7 million customers and 76 branches with customer deposits worth £15.5 billion in the UK.

Its Chairman, Mr Sharpe, has over 45 years’ experience in retail banking and is also currently Chairman of Hampshire Trust Bank, Pollen Street and Alba Bank.

Chief Executive Officer Daniel Frumkin has held business, risk, product and sales leadership roles in the UK, US, Eastern Europe and Bermuda and moved to Metro Bank from his position as Chief Operating Officer at Butterfield Bank.

Metro Bank ran into trouble in 2019 when it was forced to disclose that it did not have the capital required to meet regulatory standards after discovering an error in the categorization of commercial loans.

Concerns about the bank’s health at the time led to large depositors withdrawing cash and Metro Bank’s shares fell sharply.

Michael Hewson, senior market analyst at CMC Markets UK, said that Metro Bank “seems to have become a byword for controversy in recent years” and noted that in 2019 there had also been “questions about corporate governance which the supervisory authorities carried out investigations against the bank”. Money from Iran and Cuba, both countries under EU and US sanctions.”

He added: “When new chief executive Dan Frumkin took over, he took over a bank that had a huge trust and skills deficit to overcome, and while revenues have increased since then, there is little sign that the bank is able to do so would be ‘make a profit.’

Are customers protected?

Yes. Funded by a levy levied on all regulated financial services firms in the UK, the Financial Services Compensation Scheme (FSCS) protects your money if a financial services firm fails.

In addition to banks, building societies and credit unions, the FSCS protects pensions, insurance, investments, mortgages, trusts, PPI and debt management.

FSCS protects funds held by banks, building societies and credit unions up to £85,000 per person per UK institution.

For a joint account this amount doubles to £170,000 of protection per institution.

What is likely to happen next?

Metro Bank bosses are still considering their options, with the possibility of a capital increase or the sale of some of its assets.

The size of a capital raise could reportedly be aimed at £100m or even £250m, while the rally in shares this morning suggests the market is supporting reports the bank could sell its mortgage book.

Lenders could also be in discussions with the bank about new financing or possibly a restructuring of their existing obligations.

Investors and customers should not panic, but rather keep an eye out for further updates from the company in the coming days and weeks.

Russ Mould, investment director at stockbroker AJ Bell, said: “Metro as a standalone institution is certainly being pushed into existential territory with shares now at all-time lows.”

“The key question is: Will there be enough supporters if a fundraiser is held?”

“Existing creditors and investors may feel they have no choice but to participate, although they are unlikely to do so with much enthusiasm.”