Metro Bank Hires Morgan Stanley to Explore Capital Raise Options

Metro Bank Holdings Plc has appointed Morgan Stanley to explore options including a possible capital raise, a move that comes after the UK challenger bank announced last month it was weighing plans to strengthen its balance sheet.

(Bloomberg) — Metro Bank Holdings Plc has appointed Morgan Stanley to explore options including a possible capital raise, a move that comes after the UK challenger bank announced last month it was weighing plans to strengthen its balance sheet.

The other options under consideration include a securitization as well as asset and loan sales, according to people familiar with the matter. The move comes after the bank said in September it was looking at “how best to optimize its capital resources.” 

The UK lender is no longer working with Jefferies Financial Group Inc., one of its corporate brokers, some of the people said, asking not to be identified discussing private matters. 

The UK challenger bank, which had £22 billion ($26.6 billion) of total assets at the end of June, currently has a market value of about £87 million. 

Metro Bank announced it was weighing ways to boost capital after the Prudential Regulation Authority informed the lender it had to do more work before it was allowed to use its own internal risk models to help calculate how much capital it’s required to set aside for mortgage loans.

A spokesperson for Metro Bank said the lender works “with a range of advisers and will not comment on individual relationships.” Spokespeople for Morgan Stanley and Jefferies declined to comment.

Metro Bank has spent years seeking regulators’ approval to use an approach — known as AIRB, or advanced internal rating-based method — to calculate its regulatory capital requirements. The approach could lead to a reduction in risk-weighted assets, which, in turn, could lower the firm’s capital requirements. 

“The board retains conviction in the merits of Metro Bank’s customer-centric model and strongly believes that there is a significant opportunity set that the company can capitalize on, subject to renewed balance sheet strength,” Metro Bank said in the September statement.

The lender’s shares have halved from their level before that Sept. 12 statement, as the lender warned it was not likely to secure approval to use its internal models this year and that there is “no certainty” it might be obtained after that.

Metro Bank, which is mainly funded by deposits from consumers and small businesses, reported an underlying profit before tax of £16.1 million in the six months to June 30. That reflected improved operating margins, the bank said in a statement.

The UK lender has two outstanding debt instruments. One is a £350 million senior bail-in bond and the other a £250 million junior tier 2 note. The bail-in bond matures in 2025 and the tier 2 note in 2028. 

Willett Advisors LLC, the investment arm for the personal and philanthropic assets of Michael Bloomberg, founder and majority owner of Bloomberg News parent Bloomberg LP, held shares in Metro Bank as of November 2021, according to a regulatory filing.

–With assistance from Harry Wilson.

More stories like this are available on bloomberg.com

©2023 Bloomberg L.P.