Metro Bank has opened the door to bidders for £3bn of its mortgage book as the lender moves to shore up its balance sheet.
The business had contacted a range of lenders, including Lloyds Banking Group and NatWest Group, reports Sky News. It is unclear what bidders would be willing to pay for the portfolio of loans.
The move comes after shares in the London-listed lender tumbled by as much as 27% yesterday, after a report in the Financial Times that it was talking to investors about raising capital.
It also comes after the Prudential Regulation Authority and Financial Conduct Authority, summoned Metro’s chief executive Daniel Frumkin and chair Robert Sharpe yesterday afternoon to discuss the bank’s financial position.
The lender is looking to raise around £250m in equity funding and £350m in debt, ahead of £350m of loan notes that fall due next October.
Shares in Metro Bank recovered today, gaining 25% to 46.9p in late morning trading, valuing the business at just under £89m.
However, the firm has lost 50% of its value in recent weeks. At its 2018 peak, the bank was worth £3.5bn.
In a statement to the market yesterday, the bank said: “The company is evaluating the merits of a range of options, including a combination of equity issuance, debt issuance and/or refinancing and asset sales.
“No decision has been made on whether to proceed with any of these options.”
The business adds it is “well positioned for future growth.”
However, some analysts say that if the lender does not raise funds quickly, it faces being taken over, or collapse.
Shore Capital analyst Gary Greenwood in a research note says: “Without a capital raise it will not be able to grow its loanbook and so will struggle to build profitability, while continuing to operate so close to regulatory minimum requirements is likely to unsettle depositors, in our view, and potentially lead to material deposit outflows.”
“The group needs to move fast to shore up its balance sheet.
Greenwood adds: “If it cannot convince the regulator it can deliver, it may find matters are taken out of its own hands.”
The lender, which has around 2.7 million customers, was founded in 2010 and was the first high-street bank launch in more than 100 years. It operates from around 75 branches across the UK.
In 2019, the bank suffered a £900m accounting scandal, when it emerged that the risk attached to some of its loans had been underestimated. The business and some of its senior officers were fined £10m for misleading investors.
The bank says its gross mortgage balance slipped 0.8% to 7.59bn in the six months to June from £7.65bn at the end of last year, according to its 2023 half-year report.
Residential owner-occupied home loans make up 72% of the firm’s mortgage portfolio.
Mortgage Strategy has contacted Metro Bank.
