Metro Bank strikes rescue deal to boost finances

Image source, AFP

Metro Bank has struck a deal with investors that it says will secure its future after reports suggested it needed to raise cash to shore up its finances.

The UK lender said it had raised £325m in new funding, as well as refinancing £600m of debt.

Its boss said the deal marked "a new chapter" for the troubled lender.

Shares in the bank plunged last week on Thursday before recovering ground on Friday.

The bank has insisted that its finances remain strong and it continues to meet all regulatory requirements.

As part of the deal, Colombian billionaire Jaime Gilinski Bacal will become Metro Bank's biggest shareholder with a 52% stake. His firm, Spaldy Investments, will sink £102m into the bank.

Metro Bank was founded in 2010 in the wake of the financial crisis and was the first to open in the UK in more than 100 years.

It positioned itself as a so-called "challenger" bank to the big High Street names, with its promise of being open seven days a week.

It now has 2.7 million customers and holds about £15bn worth of deposits in 76 branches.

Questions were raised after reports emerged about its finances. The Financial Times also reported over the weekend that several rivals were weighing up potential bids for part of the business.

But in the late announcement on Sunday, it said that it had raised £325m in capital from existing shareholders and new backers.

Metro Bank also said it was still in discussions about raising cash by selling up to £3bn of its residential mortgages.

Homeowners with mortgages from Metro Bank do not face any immediate change, but if a deal goes through some customers might end up having their loans managed by another bank in the future.

The Bank of England, which had been monitoring the situation closely, welcomed the deal.

Metro Bank's chief executive Daniel Frumkin said it marked a new chapter, which meant the lender could continue expanding and would become more profitable over the coming years.

"Our strong franchise is underpinned by our loyal customer base and engaged colleagues and we will continue to develop the Metro Bank offer," he said.

But the lender has faced a number of challenges in recent years after an accounting scandal in 2019, which led to some top executives, including its founder, leaving the company.

It returned to profit in the six months to the end of June this year, partly helped by higher interest rates. This marked the first half-year profit the bank had seen since 2019.

In July, Mr Frumkin said that 2023 would be a "transitional year" for that firm and that it planned to open 11 more branches across the north of England in 2024 and 2025.

More recently, Metro Bank had asked City watchdogs for permission to use its own ratings system to value its mortgages and its assets.

But regulators turned down the request last month, saying that they wanted the bank to use an external rating system for now.

Fiona Cincotta, senior market analyst at City Index, told the BBC's Today programme that because of the bank's focus on operating High Street branches it had a "very costly business model".

"They're definitely going to have to be looking at the way they can readdress the way they do business to make it more profitable," she said.