Financial analysts at Barclays struck a balanced tone in response to challenger Metro Bank Holdings PLC (LSE:MTRO)'s recently announced financing package.
Announced on Sunday, the “transformational, if initially painful, financing package” comprises a £325 million capital raise, divided between £150 million in new equity from Metro's largest shareholders and £175 million in fresh debt from bondholders.
“The financing deal removes near-term risks around capital, moving the bank out of regulatory buffers, said Barclays. “However, we see risks to delivering the strategy over the medium-term.”
Metro Bank’s medium-term strategy is dependent on utilising capital to grow high-yield lending, “which may be challenging in the economic and competitive backdrop in the UK”, particularly with deposit headwinds impacting the entire UK bank sector.
Transaction costs on the funding package are expected to be high, while asset sales are expected to be conducted at a loss, as should higher coupon costs on Tier-2 capital and MREL (Metro Bank’s minimum equity and subordinated debt requirements).
Barclays estimates a 3% discount on a predicted £3 billion worth of asset sales by the end of 2023.
Barclays has retained an underweight rating on Metro Bank shares for now, stating: “The bank is fundamentally stronger, but we continue to see risks.”