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Metro Bank, a UK-based bank, has announced a successful capital package that includes a £325m capital raise and a £600m debt refinancing. This move is expected to enhance the bank’s balance sheet strength and accelerate its earnings potential.
The capital raise consists of £150m of new equity and £175m of new MREL (Minimum Requirement for Eligible Liabilities) issuance. The debt refinancing, on the other hand, aims to strengthen Metro Bank’s Common Equity Tier 1 (CET1) ratio and remove it from the CRD IV Combined Buffer. This is projected to support the bank in achieving a return on tangible equity (RoTE) of over 9% in 2025 and low double-digit to mid-teens thereafter in the medium term.
With this capital package, Metro Bank is expected to have a CET1 ratio exceeding 13% and an MREL ratio exceeding 21.5% by June 2023. It also provides an opportunity for the bank to grow its assets by focusing on specialist mortgages and commercial lending, which can optimize risk-adjusted returns. Metro Bank intends to achieve this growth by raising deposits, driving current account growth, and gradually shifting its asset side growth.
The equity raise was led by Spaldy Investments Limited, the bank’s largest shareholder, which contributed £102m. As a result, Spaldy Investments Limited will become the controlling shareholder of Metro Bank, holding approximately 53% of the shares.
In addition, the debt refinancing extends the call date of the existing MREL Senior Instrument to 2028, offering more flexibility to the bank.
Metro Bank is also in talks regarding an asset sale of up to £3bn of residential mortgages. If successful, this sale is expected to decrease risk-weighted assets by approximately £1bn, increase the CET1 ratio, and contribute to earnings growth in 2024.
The bank reports positive trading performance in Q3 2023, with a statutory profit after tax and continued growth in Personal and Business Current Accounts. Metro Bank aims to use the capital package to further develop its products and services, both digitally and in-store, to better meet the banking needs of its customers.
The Capital Package is subject to customary conditions and regulatory approvals.
Daniel Frumkin, Chief Executive Officer at Metro Bank, expresses optimism about the announcement, stating that it marks a new chapter for the bank and facilitates continued profitable growth. He adds that Metro Bank is committed to becoming the UK’s number one community bank.
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