Metro Bank shares plunge as it looks to raise up to £600m in new financing

Bank in talks with investors about raising £250m in equity financing and £350m in debt

Metro Bank has narrowed its losses and said it is well on its way to being profitable after cutting costs and seeing its finances bolstered by higher interest rates (Mike Egerton/PA) (PA Wire)

Metro Bank‘s shares tumbled further today after reports emerged of an urgent £600m funding drive to shore up its balance sheet.

The challenger bank is in talks with investors about raising £250m in equity financing and £350m in debt, while asset sales are also being considered to bolster the lender’s coffers.

Shares plunged by as much as a third soon after market opening on Thursday, before settling around 23 per cent lower in the wake of reports that the bank was seeking to raise new funds.

They had already suffered a major fall in September after regulators refused to approve a request to lower the capital requirements attached to its mortgage business.

Metro Bank, which has 2.7m customers, started in the aftermath of the financial crisis and was the first to open in the UK in more than 100 years.

Metro Bank said it was looking at a range of options, including a combination of equity raise and debt, as well as possible asset sales.

But it stressed “no decision has been made on whether to proceed with any of these options”.

Metro Bank said: “The company continues to consider how best to enhance its capital resources.”

A source was quoted by the FT as saying that Metro has enlisted Morgan Stanley to offer strategic guidance and oversee any potential capital-raising efforts.

Rating agency Fitch placed Metro on negative watch earlier on Wednesday, highlighting heightened risks to the company’s business model, capital position, and funding.

Sky News reported that Royal Bank of Canada, Metro Bank’s corporate broker, is also involved in the equity-raise.

With 2.7 million customer accounts under its belt, Metro Bank ranks among the top 10 largest banks in the United Kingdom.

Last month, the bank’s shares fell following indications from the Bank of England’s Prudential Regulation Authority (PRA), its primary regulator, that it was unlikely to grant the lender permission to employ its internal risk models for certain mortgages.

In September, Metro said: “The board retains conviction in the merits of Metro Bank’s customer-centric model and strongly believes that there is a significant opportunity set that the company can capitalise on, subject to renewed balance sheet strength.”

Reuters reported that Metro Bank was valued at £87m after the close on Wednesday. Shares have lost about two-thirds of their value since mid-February, it said.