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Metro Bank strikes rescue deal to boost finances

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Metro Bank has struck a deal to raise extra funds from investors that it says will secure its future.

Shares in the bank had slumped last week after reports suggested it needed to raise cash to shore up its finances.

But on Sunday, the UK lender said it had raised £325 million in new funding as well as refinancing £600 million of debt.

Its boss said the deal marked “a new chapter” for the troubled firm, and shares in Metro Bank rebounded as trading got under way on Monday.

Metro Bank’s shares rose by about 10% on Monday, taking its share price to about 50p, close to the level it had been at last week before reports on the bank’s financial situation emerged.

The bank has insisted all along that its finances remain strong and that it continues to meet all regulatory requirements.

As part of the deal, Colombian billionaire Jaime Gilinski Bacal will become Metro Bank’s biggest shareholder with a 52% stake. His firm, Spaldy Investments, will sink £102 million into the bank.

Metro Bank was founded in 2010 in the wake of the financial crisis and was the first to open in the UK in more than 100 years.

It positioned itself as a so-called “challenger” bank to the big High Street names, with its promise of being open seven days a week.

It now has 2.7 million customers and holds about £15bn worth of deposits in 76 branches.

Questions were raised after reports emerged about its finances. The Financial Times also reported over the weekend that several rivals were weighing up potential bids for part of the business.

But in the late announcement on Sunday, it said that it had raised £325m in capital from existing shareholders and new backers.

The Bank of England, which had been monitoring the situation closely, welcomed the deal.

Metro Bank also said it was still in discussions about raising cash by selling up to £3bn of its residential mortgages.

Homeowners with mortgages from Metro Bank do not face any immediate change, but if a deal goes through some customers might end up having their loans managed by another bank in the future.

Metro Bank’s chief executive Daniel Frumkin said the rescue deal marked a new chapter, which meant the lender could continue expanding and would become more profitable over the coming years.

“Our strong franchise is underpinned by our loyal customer base and engaged colleagues and we will continue to develop the Metro Bank offer,” he said.

But the lender has faced a number of challenges in recent years after an accounting scandal in 2019, which led to some top executives, including its founder, leaving the company.

It returned to profit in the six months to the end of June this year, partly helped by higher interest rates. This marked the first half-year profit the bank had seen since 2019.

In July, Mr Frumkin said that 2023 would be a “transitional year” for the firm and that it planned to open 11 more branches across the north of England in 2024 and 2025.

More recently, Metro Bank had asked City watchdogs for permission to use its own ratings system to value its mortgages and its assets.

But regulators turned down the request last month, saying that they wanted the bank to use an external rating system for now.

Simon Samuels, a former managing director at Barclays and Citi, told the BBC’s Today programme that while Sunday’s deal “buys Metro some time”, it did not address the “fundamental challenges” with its business model which is “very branch-based and very expensive”.

Metro Bank, he said, had been hit by the challenges of Covid which saw an acceleration by customers towards online banking.”Essentially, Metro finds itself with an unsustainable cost base [which] represents almost 90% of its income, and that’s way too high,” he said.

While Mr Samuels said that Metro remained committed to its strategy, he said it “has got little chance of succeeding in the long run”.

“Eventually [Metro Bank] may end up being part of a larger group.”