Metro Bank has unveiled plans to raise £350m from investors in an attempt to stabilise the company following a significant accounting error last month, causing its FTSE share price to drop by 15.8%.
Metro woes begun in January as the firm’s governance had to explain to investors that its auditing team had underestimated the risk level of attached to a number of commercial loans – an embarrassing episode for any highstreet challenger bank.
A percentage of commercial loans had been incorrectly classified and should have been labelled as a “risk-weighted assets”, ultimately wiping at least £800m off the value of the company.
Following a review of its loans portfolio, the bank discovered around a tenth of its £14.5bn book had been given incorrect risk weightings.
Metro Chairman Vernon Hill and other directors intend to assist in the raising of equity funds and the bank also plans to sell about £500m of bonds later this year to help ease capital concerns.
The new cash call comes six months after shareholders invested £300m to finance the firms “future growth ambitions”.
Laith Khalaf, a senior analyst at Hargreaves Lansdown, told City A.M: “This has been a hugely damaging and embarrassing episode for Metro Bank, which is now having to raise new equity at low ebb for the share price.
“Metro now has to restore confidence among investors, a job that will be made more challenging by an ongoing regulatory investigation into its accounting failure.”
Overall, 2018 was a positive year for the high street bank with pre-tax profits up 140%, customer accounts grew to 1.6 million and deposits were up 34% year-on-year to £15.7 billion.
Looking forward
Despite growing concerns, the British bank remains confident about its future.
In spite of the issues surrounding the bank, Metro secured £120m from the independent Banking Competition Remedies body last week in a scheme aimed at boosting competition in the business banking sector.
Chief executive Craig Donaldson said there were “absolutely no question marks” over its future and revealed he offered his resignation following the mistake that was uncovered last month.
However, he said he had the confidence of the board to continue; waiving his annual bonus that was previously worth £800,000.
The high street banking group also revealed that it is set to face investigations from both the Bank of England’s Prudential Regulation Authority and the Financial Conduct Authority.
Labour MP John Mann said last month: ‘This is extremely serious and raises questions over whether Craig Donaldson and Metro Bank misled the market.
‘Regulators must now look into exactly what was said and take action against senior management if they are found to have lied.’
