Metro Bank Shares Soar Following Financial Boosting Deal

metro-bank-shares-soar-following-financial-boosting-deal

Shares of Metro Bank (MTRO.L) surged in early trading on Monday, after the troubled British bank reached an overnight fundraising agreement to buttress its balance sheet in the aftermath of volatile trading. Sunday, Metro announced a 325-million-pound ($396-million) capital raising exercise and a 600-million-pound debt refinancing as part of an agreement to transfer majority shareholder control to Colombian oligarch Jaime Gilinski, its largest investor.

Gary Greenwood, banking analyst at Shore Capital, said the transaction appeared to secure the bank’s immediate viability, but represented “a very painful rescue” as it entailed a hit for both shareholders and bondholders. At 08:00 GMT, Metro Bank shares were up 26% to 56.9 pence.

Metro was founded in 2010 to challenge the dominance of Britain’s major banks, but it has suffered a series of setbacks in recent years, including accounting errors, leadership departures, and delays in regulatory approval of critical capital reliefs.

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Metro Bank Faces Stock Volatility Amidst Capital Raising Speculations and PRA’s Takeover Approaches

Last week, the bank’s stock fluctuated in response to rumors that it was attempting to raise approximately 600 million pounds; the lender subsequently confirmed that it was evaluating its options. Recently, the Prudential Regulation Authority (PRA) of the Bank of England approached a number of prominent banks, including Lloyds and HSBC, to contemplate takeover offers for Metro Bank.

Sunday saw the PRA’s fundraising agreement with Metro.

Metro has agreed to a capital increase comprised of 150 million pounds of new equity and 175 million pounds of “MREL” bail-in debt as part of the agreement.

Metro’s greatest shareholder, Spalinski’s Spaldy Investments, contributed 102 million pounds to the capital increase. Metro stated that Spaldy will become the controlling shareholder with a 53% stake once the transaction is finalized.

The price per share for the equity raise will be 30 pence, or less than Friday’s closing price of 45 pence.

Bondholders will also take a blow, with holders of a 250-million-pound Tier-2 bond taking a 40% haircut, before switching to bonds that yield a greater rate of interest.

John Cronin, a banking analyst at Goodbody, stated in a note that while “the feel of a deal” existed, the bank’s supporters still needed to grant approval, and he anticipated some opposition.

“As things currently stand, Metro shareholders will suffer material dilution and the bondholders are taking a deep haircut.”

In 2016, when Metro was first listed on the London Stock Exchange at 20 pounds per share, its shares are approximately 97% lower than when they were first offered for sale.

($1 = 0.8219 lbs)

 

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Source: Reuters

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