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Metro Bank Secures Valuable £325m Capital Boost to Strengthen Balance Sheet

Metro Bank Secures Valuable £325m Capital Boost to Strengthen Balance Sheet

Metro Bank Secures Valuable £325m Capital Boost to Strengthen Balance Sheet

According to Metro Bank, a plan to raise more capital from investors will safeguard its future.

Following news that the bank needed to raise money to strengthen its finances, the value of its shares fell last week.

However, the UK lender announced on Sunday that it has refinanced £600 million of debt and received £325 million in additional funding.

As soon as trading began on Monday, shares of Metro Bank recovered after its CEO declared that the agreement heralded “a new chapter” for the struggling company.

The share price of Metro Bank increased by around 10% on Monday, reaching roughly 50p, which is nearly the same amount as last week, before news of the bank’s financial problems broke.

The bank has maintained that its finances are sound and that it is still in compliance with all legal and regulatory obligations.

With a 52% stake, Colombian billionaire Jaime Gilinski Bacal will take over as Metro Bank’s largest shareholder as part of the agreement. Spaldy Investments, his business, will deposit £102 million in the bank.

After the financial crisis, Metro Bank was established in 2010, becoming the first bank to open in the UK in more than a century.

It advertised itself as a “challenger” bank to the well-known High Street brands, promising to be open seven days a week.

It currently has 2.7 million clients and 76 branches hold deposits totaling roughly £15 billion.

Concerns were raised after information regarding its finances surfaced. The Financial Times also stated over the weekend that a number of competitors were considering making offers for a stake in the company.

However, it stated that it had raised £325 million in capital from both current owners and new supporters in the late statement on Sunday.

The Bank of England, which had been closely watching the situation, applauded the agreement.

Additionally, Metro Bank stated that it was still in talks to sell up to £3 billion of its residential mortgages in order to raise money.

Homeowners with mortgages from Metro Bank are not currently affected, but if a merger is completed, some clients may eventually have their loans serviced by a different bank.

According to Metro Bank’s CEO Daniel Frumkin, the rescue agreement opened a new chapter, allowing the institution to continue growing and turning a profit in the years to come.

“Our strong franchise is underpinned by our loyal customer base and engaged colleagues and we will continue to develop the Metro Bank offer,” he stated.

But following an accounting controversy in 2019 that resulted in the departure of numerous top executives, including the lender’s founder, the company has experienced a lot of difficulties recently.

In the six months leading up to the end of June of this year, it generated a profit, in part thanks to rising interest rates. The bank saw its first half-year profit since 2019 with this.

Mr. Frumkin stated in July that the company will experience a “transitional year” in 2023 and that it planned to open 11 additional branches around the north of England in 2024 and 2025.

More recently, Metro Bank had requested City watchdogs for approval to appraise its assets and mortgages using its own grading system.

However, last month, authorities denied the proposal, stating that they preferred the bank employ an external rating system initially.

Former managing director at Barclays and Citi Simon Samuels said that while Sunday’s agreement “buys Metro some time,” it did not solve the “fundamental challenges” with its “very branch-based and very expensive” business model.

According to him, Covid’s problems had a negative impact on Metro Bank and caused clients to turn more and more quickly to internet banking.”Essentially, Metro finds itself with an unsustainable cost base [which] represents almost 90% of its income, and that’s way too high,” he stated.

Even though Metro maintained its commitment to its approach, Mr. Samuels claimed that it “has little chance of succeeding in the long run”.

“Eventually [Metro Bank] may end up being part of a larger group.”

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