Metro Bank’s shares surged in early trading on Monday, following the announcement of a fundraising deal aimed at strengthening its balance sheet.
The deal includes a 325-million-pound capital raising exercise and a 600-million-pound debt refinancing, which will result in majority shareholder control being handed to the bank’s largest investor, Colombian billionaire Jaime Gilinski.
According to banking analyst Gary Greenwood, the deal secures the bank’s immediate future, but will be a painful rescue for shareholders and bondholders. The stock was up 26% at 56.9 pence, with the bank’s principal regulator, the Bank of England’s Prudential Regulation Authority, welcoming the deal.
Metro Bank launched in 2010 to challenge the dominance of Britain’s big banks but has faced accounting errors, leadership departures, and delayed regulatory approval in recent years. The bank’s stock fluctuated last week on reports that it was trying to raise about 600 million pounds, with the lender later confirming it was exploring its options.
The deal agreed upon includes a capital raise comprising 150 million pounds of new equity and a 175-million-pound issuance of bail-in debt known as “MREL”. The equity raise was led by Metro’s largest shareholder, Gilinski-owned Spaldy Investments, which contributed 102 million pounds. Spaldy will become the controlling shareholder once the transaction is completed, with a stake of 53%.
The shares in the equity raise will be priced at 30 pence per share, or a discount to Friday’s closing price of 45 pence. Bondholders will also face a hit, with holders of a 250-million-pound Tier-2 bond taking a haircut of 40% before switching to higher interest-paying bonds.
As John Cronin, banking analyst at Goodbody, noted, while there was “the feel of a deal,” the bank’s backers still had to grant approval, and he expected some resistance.
Unfortunately, Metro shares remain around 97% down from when it first listed on the London stock exchange in 2016 at 20 pounds per share.