- Shareholders support equity raise
- Bond restructuring due ‘shortly’
- Cost-saving target increased
As the old saying goes, what doesn’t kill you makes you stronger, and investors in Metro Bank (MTRO) cheered the news the company had not only secured a financial lifeline via a share placing but had raised its cost-cutting target in order to keep it on a firmer footing in the future.
The shares, which have been bumping along sub-40p for the best part of a month, jumped more than 5% to 41p on elevated volume.
STRONG SHAREHOLDER SUPPORT
At the start of October, Metro announced it had secured £325 million of funding, comprising £150 million of new equity and £175 million of MREL notes, which are necessary to satisfy the Bank of England's minimum requirement for own funds and eligible liabilities.
At the same time, the bank said it would arrange the refinancing of £600 million of outstanding debt.
This morning, the company said the ‘firm placing’ of 500 million new shares at 30p each was expected to complete later today, thanks to what was described as ‘overwhelming’ support from shareholders, while the MREL raise and debt restructuring would be confirmed ‘shortly’.
Commenting on the capital raise, chief executive Daniel Frumkin said: ‘The support shown from our investors through this transaction will allow Metro Bank to accelerate its growth plans, with the new capital allowing us to unlock the potential in the business and deliver sustainable profitable returns as we strive to be the number one community bank.’
Earlier this week, Sky News reported Metro was in negotiations to sell a portfolio of £3 billion worth of residential mortgages to Barclays (BARC) in order to speed up its restructuring process.
BRANCH NETWORK SPARED
Alongside the news of the equity raise, the bank revealed that after ‘further evaluation of the cost base’ it had identified potential savings of up to £50 million per year instead of its initial estimate of £30 million.
Originally, the cost-cutting plan was meant to start this quarter with 75% of the benefits coming through next year and the remainder in 2025, but the start has been moved to the first quarter of 2024 and the bank will take a one-off charge of between £10 million and £15 million against this year’s accounts, which is lower than expected.
One of Metro’s key selling points when it launched in the UK was its broad branch network, and the bank says it remains ‘committed to stores and the high street’ and is actively looking to open more sites in the north of England.
However, it admits it is reviewing its strategy of long opening hours and staying open seven days a week and is ‘in discussions with the FCA (Financial Conduct Authority) about the customer implications of any such changes’.
Most of the cost efficiencies are expected to come through automating service and back-office operations and improving digital channels, particularly for deposits, which are expected to result in a 20% reduction in headcount.
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