Metro Bank bondholders offer lender £600mn capital package

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A group of Metro Bank bondholders contacted the UK lender’s board on Monday offering a £600mn capital injection, but the company has yet to accept the offer, according to two people familiar with the matter.

The challenger bank sent representatives for the consortium of bondholders a letter on Friday morning that acknowledged the offer, which is still on the table, according to one of the people. The bondholders’ offer came before Metro approached investors this week about a separate fundraising plan for a similar amount to shore up its balance sheet.

Existing investors, who could lose money if the bank fails, are looking to bolster its capital position and avoid it running into difficulty.

The investors, who are being represented by investment banking boutique PJT Partners, made the proposal after Metro last month announced an indefinite delay to UK regulatory approvals that would have significantly reduced the cost of its mortgage business.

Its share price plunged 50 per cent in the weeks following the disclosure of the delay that meant that approvals for regulatory relief to reduce capital in its mortgage business would not come until 2024, and might not come at all.

Shares in Metro were up roughly 30 per cent in early afternoon trading on Friday, rebounding from steep declines over the previous two days, but are still down more than 10 per cent for the week.

Earlier this week, Metro was put on negative watch by rating agency Fitch, which cited increased risks to its business model, capital position and funding of the company.

On Wednesday, the Financial Times reported that the bank had hired Morgan Stanley as it sought to raise up to £600mn to shore up its balance sheet. Morgan Stanley was seeking interest from investors about raising £250mn in equity funding and £350mn in debt, with the bank under pressure to refinance £350mn of senior bonds by next October.

The offer from the bondholders matches this package, according to the people with knowledge of it.

Metro Bank has hundreds of millions of pounds of debt that can convert into equity under so-called bail-in rules if the bank runs into trouble. It has to refinance £350mn of this debt by October 2024, when that bond can no longer be counted towards a key capital buffer, known as MREL.

On Thursday, Metro said it was considering a range of options, including a combination of equity and debt issuance, as well as refinancing and asset sales.

Metro, PJT, the Financial Conduct Authority and Prudential Regulation Authority all declined to comment on the bondholders’ proposal.

Metro has sounded out rivals, including Lloyds Banking Group, NatWest and HSBC, about buying a third of its mortgage book to help bolster its balance sheet.

Analysts cautioned that selling a part of its mortgage book may not be enough to address the bank’s problems.

An asset sale would “merely [kick] the can down the road and doesn’t address the fundamental issue that the bank is over-costed and lacks scale”, said Gary Greenwood, analyst at Shore Capital.

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