Shares in embattled lender Metro Bank have come under renewed pressure despite a statement over the weekend that its plans to raise £350m in fresh capital were “well advanced”.
The bank said it was in “final discussions” with existing shareholders and new investors over the share placing – after Sky News revealed that details were set to be unveiled this week.
Metro Bank has been forced to raise fresh capital after a major accounting error first disclosed in January, which has spooked investors and sent its market value tumbling.
Shares were down by 7% in early trading on Monday, leaving them 70% lower for the year to date.
Metro Ban’s problems were compounded over the weekend when it was forced to deny “false rumours” circulated on social media about property held by customers in safe deposit boxes.
© GettyMeanwhile chief executive Craig Donaldson revealed in an interview with the Financial Times that it was considering plans to sell £1bn worth of loans at the centre of the accounting blunder that has plunged the bank into crisis – though stressing no final decision had been made.
The error relates to the way it had classified the riskiness of certain loans – with some being riskier than previously assumed.
That means that, under banking rules, it must hold more capital on its books to guard against the danger of those loans going bad.
The impact of the mistake was recently illustrated by quarterly results showing that Metro Bank’s profits had halved and it had suffered and exodus of corporate customers.
Rumours in recent days that the lender would need to raise more than that sum through a deeply discounted rights issue were dismissed this weekend by insiders.
One City source said that Metro Bank and its advisers had opened formal talks with institutional investors and were encouraged by their appetite to participate in the latest fundraising.
Reports that the company was struggling to secure the new funds were misguided because three investment banks had already guaranteed to underwrite the capital-raising, they added.
Metro Bank has 1.7 million customers and describes itself as “the revolution in British banking”, employing a model founded on friendly customer service.
Its recent travails, however, have dented its hopes of growing its deposit base by 20% this year.
Russ Mould, investment director at AJ Bell, said: “While Metro Bank has done its best to reassure customers that their money is safe, pictures of one of its branches packed with individuals wanting to cash out is damaging to its reputation and could hurt new customer growth, at least in the short term.
“Assuming it raises £350m later this week, Metro Bank will then have to prove to the market and its customers that the business is robust and capable of growing without needing regular capital injections and also without a repeat of the recent accounting error.”