The bank’s shares have fallen by 30% and it is barely meeting its capital requirements.
After news broke on Wednesday evening that the financial institution was prepared to ask shareholders for several hundred million of pounds to strengthen its balance sheet, Metro Bank’s shares fell 30% on Thursday. Here are the implications for the bank’s clients.
After being founded by Californian billionaire Vern Hill in 2010, Metro Bank claims it is not now under any imminent threat and is conducting business as usual. Metro Bank was the first major high street bank to open in the UK in more than a century. With 2.7 million clients, 76 locations, and £15.5 billion in UK client deposits, Metro has a substantial customer base.
To ensure that Metro can keep growing, more funding is required. Without that additional financing, its capacity to lend might be in jeopardy.
The problem lies in the fact the bank operates outside of its capital needs, or the quantity of assets it has that can be quickly sold off if it suffers unforeseen losses.
By obtaining approval by the Bank of England to utilize its own internal mathematical models to evaluate its mortgage risks, Metro hoped to remove that requirement. That request was turned down, though, in the first week of September, which led to a gradual sell-off over the subsequent few weeks.
There is some urgency, though, because investors must contribute a new tranche of funds to restructure £350 million of the company’s debt as soon as possible and no later before October 2025.
As part of the organization’s fundraising efforts, there is a prospect that Metro will sell off some of its mortgages books to a willing buyer. This might eventually lead to some clients having their mortgages managed by a different lender or investor.
For the purpose of selling £3 billion worth of its mortgages, Metro is said to have contacted competitors like Lloyds and NatWest. All three banks steered clear of comment.
After the mini-crisis that occurred in March that led to the unexpected failure of three rural US lenders, notably Silicon Valley Bank, traders are on watch for tremors in the banking sector. Weeks later, Credit Suisse, the biggest lender in Switzerland, went bankrupt.
Concerns have also been raised over Metro’s potential financial success. As a result of its “business model stabilization, buffers for capital and funding have increased,” the rating agency Fitch put it on “rating watch negative” on Wednesday.
However, it is understood that the Prudential Regulation Agency (PRA), a watchdog for the Bank of England, is continuing its routine oversight of Metro’s operations.