The troubled Metro Bank has raised £925 million in a rescue deal, strengthening its balance sheet and position in the market. According to reports, the agreement consists of £325 million in new funding and a refinanced £600 million in debt. Jaime Gilinski Bacal, a Colombian billionaire and investor in Metro Bank since 2019, has contributed £102 million through his investment firm, Spaldy Investments, in exchange for a majority ownership of 53% in the bank.
Metro Bank, founded in 2010 by US businessmen Vernon Hill and Anthony Thomson, was observed as having a bold and innovative approach to banking. With a focus on a retail store business model, Metro Bank redefined the customer experience in the sector and quickly built a network of devoted clients, increasing its footprint through high-street retail stores and establishing itself as one of the top 10 banks in the country.
In the aftermath of the Metro Banks accounting scandal in 2019, where it underreported the amount of capital required against the risks, customer confidence declined, which led to withdrawals of their deposited money. The incident resulted in a number of regulatory challenges, financial difficulties, and the largest one-day decline in the share prices of the nation's banks since the global financial crisis. The Bank of England called upon several private equity firms to submit their bids to acquire Metro Bank in a rescue deal. As this news surfaced, Metro Bank’s share price plunged 30%.
Nerves are still raw from the over-the-weekend takeover of Silicon Valley Bank UK by HSBC in March, followed by UBS’s acquisition of Credit Suisse in the same month. Once again, lenders were seen competing to rescue Metro Bank. Metro Bank initially rejected the offer from Shawbrook, while JP Morgan and HSBC opted out of the bidding race after examining the risk. Barclays Bank, Lloyds, and NatWest were among the lenders spotted in bidding wars until the bank reached an agreement with Spaldy Investments and other smaller investors. The key financial advisors involved in this transaction include Morgan Stanley, RBC Capital Markets, and Moelis & Co., while Linklaters was seen as the legal advisor.
Metro Bank’s acquisition demonstrates the resilience in the financial sector, and the financial boost was seen as a much-needed lifeline, giving the bank another chance to regain its footing and rebuild. The deal comes with strings attached, including an asset sale of up to £3 billion of residential mortgages, which is expected to reduce risk-weighted assets by around £1 billion. It is understood that the Bank of England’s watchdog, the Prudential Regulatory Authority (PRA), is continuing the standard stress tests of Metro’s operations.
Following the announcement of its acquisition, Metro Bank’s share price is seen to recover, reaching £47 on October 13, 2023, following a 30% fall in share price to £37.50 on October 5, 2023. Although the bank's vision and retail store business model are supported by the new billionaire owner, it is unclear whether Metro Bank will recapture its former glory and win back its customers or whether it will make a dramatic change to its operations and strategy.
Written by: Mohammed Mukadam
Sources: The Guardian, Reuters, Yahoo Finance, Sky News, Financial Times, BBC, Bloomberg.
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