6 months ago
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It's been a turbulent and rapidly evolving few days for Metro Bank.
Metro Bank shares tumbled last week amid reports it was on the lookout for huge sums of cash in a quest to boost its ailing balance sheet.
During a frenetic weekend, Metro Bank secured fresh financing and a debt refinancing package.
The lender's chief executive, Dan Frumkin, has vowed to protect the group's branch network, while launching a multi-million pound cost-cutting drive.
Turbulence: Metro Bank secured a rescue package over the weekend
The bank plans to open more branches, at a time when many other lenders are closing them.
Here, This is Money looks at what has happened at Metro Bank, how the group's share price has been affected, what the plans for branches are and what all the twists and turns mean for the bank's current account holders, savers and borrowers.
What has happened at Metro Bank?
Last week, Metro Bank shares nosedived after reports surfaced claiming the group was seeking to raise millions of pounds in a bid to bolster its balance sheet.
Reports claimed the bank needed to raise about £600million. As a result, the group's share price fell by around a third to an all time low of 34p.
At the time, Metro Bank said it 'continues to consider how best to enhance its capital resources.'
Ratings agency Fitch placed it on 'rating watch negative.'
On Thursday, Metro Bank said its options included a combination of equity and debt issuance, as well as refinancing and asset sales.
It said that it met its minimum capital requirements and had not made a decision on fundraising plans.
The stock then rebounded on Friday following reports Metro Bank was looking to offload £3billion worth of assets from its mortgage book.
Over the weekend, the Bank of England's Prudential Regulation Authority approached a number of UK lenders this week to see if they were interested in taking over Metro Bank.
According to the Financial Times, NatWest and Lloyds were among rivals weighing up bids for parts of Metro Bank.
HSBC and JP Morgan studied bids for Metro Bank before opting not to proceed on Saturday after being deterred by the extra capital a buyer would have to put in, the report added.
Since then, there's been a big development. On Sunday night, Metro Bank secured cash to boost its finances. Notably the financing was secured before markets opened again on Monday, bringing the total lifeline to £925million.
In a stock market statement on Monday, the bank said it had secured a £325million capital raise and £600million worth of debt refinancing.
Colombian billionaire Jaime Gilinski Bacal will take control of the lender by becoming its largest shareholder, amassing a 53 per cent stake by investing £102million into the group.
He is contributing to Metro Bank's £325million fund raise, which comprises of £150million worth of new equity and £175million of new debt.
Gilinski must now secure an exemption from takeover rules that normally require an investor to make a bid for the entire company if they raise their stake above 30 per cent.
What does this mean for Metro Bank shares?
Metro Bank shares are performing strongly this week and were up 3.39 per cent or 1.7p to 51.9p on Tuesday afternoon, having fallen over 29 per cent in the last year.
The shares rose by around 25 per cent following the group's announcement on Monday.
The lender's stock market value is now less than £100million. Five years ago it was valued at around £3.5billion.
As well as getting a cash injection, the deal gives the lender breathing space to further consider plans to sell off £3billion worth of its residential mortgages - a move which would boost its bottom line.
But the deal agreed over the weekend will have an impact on the lender's investors.
The equity raise was led by Metro's largest shareholder, Gilinski-owned Spaldy Investments, which contributed £102million. Spaldy will become the controlling shareholder once the transaction is completed.
The shares in the equity raise will be priced at 30p per share, or a discount to Friday's closing price of 45p.
Bondholders will also face a hit, with holders of a £250million Tier-2 bond taking a haircut of 40 per cent.
Gary Greenwood, an analyst at Shore Capital, said the deal appeared to secure the bank's immediate future, but represented 'a very painful rescue' as it entailed a hit for both shareholders and bondholders.
Earlier this week, Russ Mould, investment director at AJ Bell, said: 'The value of the company's bonds and shares shot up on the fundraising plan as they were previously priced as if the company was in serious trouble.
'The fundraising now removes a lot of the risks, yet existing shareholders who do not participate in the equity raise will suffer significant dilution. Bondholders also get a big haircut.'
Why does Metro Bank want to open more branches?
This week Metro Bank has vowed to open more bank branches across the UK.
With swathes of banks shutting large numbers of branches up and down the country, this move is firmly bucking the national trend.
According to Which?, almost three in five bank branches, or 5,600 sites, have closed in the past nine years.
Since 2015, Barclays has been the individual bank that has reduced its network the most, with 1,098 branches now closed, according to its data.
Metro Bank's plan to open more branches emerged as the lender confirmed it was looking to make cost savings of £30million per year.
Since unveiling its rescue package, the lender has insisted that all of its 76 branches are safe and doubled down on plans to open 11 more sites in the north of England over the next two years. The location of the 11 sites has not been revealed.
Branch focus: Metro Bank were always keen for branches to be a focal point of their business
In a call with analysts, Frumkin said the bank would stick with its branch-based approach.
He said: 'There's nothing wrong with the Metro business model. With the capital we've just obtained, we're very confident in where we go next.'
Branches cost a lot of money to run, but Metro Bank's focus on them is entrenched.
When the lender first opened in 2010 it positioned itself as a challenger bank and vowed to revitalise UK high streets with bank branches open seven days a week - and it vowed to have 200 branches by 2020.
Metro Bank aimed to make their swish new branches a focal-point of the business at a time when conventional banks were closing them down or curbing plans to open new ones.
James Daley, the founder of campaign group Fairer Finance, told This is Money: 'Metro Bank may be committing to keep its branches open for the longer run - but it's not going to be a sustainable proposition over the long run.
'Footfall in most branches is decreasing and demand for face to face service is diminishing.
'I always thought it was rather bold of Metro Bank to buck that trend and make a virtue of having a growing branch network - and I think it was a key reason why they were so successful at attracting business customers.
'But the sharp reduction in cash usage over the last decade has meant that many businesses have much less need for traditional branch based banking services - and most younger banking customers have barely set foot in a bank.
'The most important thing is that Metro Bank get themselves on a permanently stable financial footing. It's very unnerving for business customers - ourselves amongst them - to be worrying about whether your bank is financially robust.
'I'd happily see them cut their branches and dog bowls if it helps them build long term stability.'
AJ Bell's Russ Mould, said: 'A high-cost base is unsustainable, so something has to change.
'If not, Metro Bank might find itself gobbled up by a bigger company whose first job will be to shut down its expensive branch network.'
What is the bank's co-founder saying about branches?
On Tuesday, the co-founder of Metro Bank claimed the lender faced a 'limited future' if it continued with its strategy of focusing on high street branches.
Anthony Thomson, the bank's chairman from 2010 to 2012, told the BBC he thought the idea was a 'flawed strategy.'
He said that the combination of pursuing a branch-based strategy given its financial position gave Metro Bank 'a very, very limited future.'
He added: 'I would not like to be the chairman or the chief executive of Metro Bank today.'
Mr Thomson left Metro Bank in 2012 to set up Atom Bank, an internet-only company that has no bricks and mortar branches.
What does this all mean for current account holders?
Metro Bank, which has around 2.7mllion customers, is operating as normal and not currently facing any immediate threat to its viability.
Current account customers can continue to withdraw or add money to their accounts as normal.
Any overdraft arrangements or fees linked to the account remain and are operating as normal.
Customers can still switch their current account to another provider or open a current account with Metro Bank.
What's the impact on savers?
Metro Bank savings accounts are operating as normal, with interest still accruing.
Customers can still open and close Metro Bank savings accounts as normal and withdraw or add cash to them.
As with many banks and building societies, customer deposits up to £85,000 are protected by the Financial Services Compensation Scheme, which guarantees that if a bank runs into trouble, depositors will get their money back up to that level.
That guarantee would cover the majority of Metro Bank's £15.5billion in customer deposits.
What does this mean for borrowers?
Anyone with a Metro Bank mortgage won't see any immediate changes. Repayments and interest accruals are operating as normal.
Metro Bank has said it is considering offloading £3billion worth of its residential mortgage book.
If this happened, customers with a Metro Bank mortgage could end up having their loan managed by a different provider, namely a lender or investor, in the future.
Metro Bank in the UK - a short history
Dog lover: American billionaire Vernon Hill, pictured, launched Metro Bank with Anthony Thomson in 2010
Metro Bank became the first high street bank to open in the UK for more than a century.
It was launched by dog-loving American billionaire Vernon Hill and Anthony Thomson in 2010.
The lender positioned itself as a challenger bank with a heavy focus on bank branches and customer service. Its objective was to challenge the market dominance of banks including Lloyds and Barclays.
As a unique selling point, the lender planned for branches to be open seven days a week, with water bowls and dog biscuits for customers' pets available.
It has also attracted business from wealthier customers through its provision of safe deposit boxes in branches, a traditional banking service that had fallen out of fashion among many rivals
However, Metro Bank has faced a number of challenges in recent years after an accounting scandal in 2019, which led to some top executives, including Mr Hill, leaving the group. The group had underreported how much capital it needed to hold against its risks.
Two of its former executives were slapped with fines by regulator the Financial Conduct Authority over the reporting errors, which wiped hundreds of millions of pounds off its share value in 2019.
More recently, Metro Bank asked City watchdogs for permission to use its own ratings system to value its mortgages and its assets. That would have freed up cash so it could go out and continue to expand. Without extra cash, the bank's ability to lend could have been curbed.
But regulators turned down the request in September, stating that they wanted the bank to use an external rating system.
The bank has 76 branches in the UK and approximately 2.7million customers.
