Shares in Metro Bank experienced a significant upswing during early trading on Monday following a successful capital raising deal struck by the beleaguered British lender. The move comes after intense discussions over the weekend in response to turbulent market conditions.
Metro Bank unveiled plans for a £325 million ($396 million) capital raising initiative and a £600 million debt refinancing agreement on Sunday. This arrangement will see majority shareholder control shift to its largest investor, Colombian billionaire Jaime Gilinski.
While the deal has been lauded as securing the bank’s immediate future, analysts like Gary Greenwood from Shore Capital caution that it represents a “very painful rescue,” with both shareholders and bondholders expected to take a hit.
As of 0800 GMT, Metro Bank shares had surged by 26% to reach 56.9 pence.
Founded in 2010 with the aim of challenging the dominance of major British banks, Metro Bank has faced numerous setbacks in recent years, including accounting errors, leadership departures, and regulatory hurdles related to capital relief.
The bank’s stock experienced significant fluctuations last week amid reports of its intent to raise approximately £600 million, a move that the lender later confirmed.
The Bank of England’s Prudential Regulation Authority (PRA), which serves as Metro’s principal regulator, engaged with several major banks, including Lloyds and HSBC, last week to explore takeover offers for the struggling bank. The PRA welcomed Metro’s fundraising deal on Sunday.
As part of the agreement, Metro will execute a capital raise comprising £150 million in new equity and a £175 million issuance of bail-in debt, known as “MREL.” The equity portion of the raise was led by Metro’s largest shareholder, Spaldy Investments, owned by Gilinski, which contributed £102 million. Spaldy will assume majority control upon the transaction’s completion, holding a 53% stake.
The equity shares will be priced at 30 pence per share, representing a discount to the previous closing price of 45 pence.
Bondholders will also incur losses, with holders of a £250 million Tier-2 bond set to take a 40% haircut before transitioning to higher interest-paying bonds.
Despite the market’s positive reaction to the deal, analysts such as John Cronin from Goodbody anticipate potential resistance from Metro’s backers. Cronin noted, “As things currently stand, Metro shareholders will suffer material dilution and the bondholders are taking a deep haircut.”
Metro Bank’s shares remain approximately 97% lower than their initial listing price of £20 per share on the London Stock Exchange in 2016.