Metro Bank (MTRO) got its £350 million bond fundraising done this week but at a 9.5 % coupon, compared with the 7.5% bond offer which failed in September. Because of the high cost of the funding to meet minimum regulatory funding constraints (MREL), Metro is unlikely to return to profit until 2021 according to analysts.
Chairman Vernon Hill, and co-founder, has also announced he is leaving by the end of 2019. Hill once said he was so committed to Metro he would "probably die there" It is believed that Hill’s departure was forced on him by the new bond investors. He said over the summer that he would step aside once a new chairman was found but would remain on the board as founder and president , raising concerns that he would still have a major say.
Interest charges on the £350 million of bonds will cost the bank about £33 million a year. "It is an off-the-scale cost," said Ian Gordon, a banks analyst at Investec. "It's the most expensive bond issue by any bank raising this type of debt, which bluntly reflects the fact they were up against a wall with only a small remaining window to accomplish it." John Cronin, a banks analyst for Goodbody, agreed that the "high pricing" of the debt issue means the bank "will be in loss-making territory until 2021".
In March 2018, MTRO was trading just over £40 a share. It is now worth just 193p.
At 193p, the market cap of MTRO is at a bombed-out £333 million. They have just raised £350 million and have £21 billion in assets. It looks a risky, but good investment for thrill-seekers and I bought a few yesterday. The bad publicity over the last few weeks has hugely damaged sentiment and it will be fascinating to see the update of any customer withdrawals. At least the new bond raising stops any issues about Bank of England capital targets etc. Upside potential looks better than the downside risk. Let’s see. The announcement later this year of Hill’s replacement will be a big one for sure and will any other investors like Elliott come in?