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Metro Bank raises £375mln in less than three hours to bolster balance sheet

The challenger bank closed the fundraising early on Thursday evening after the placing was “significantly oversubscribed”
Metro Bank
Metro Bank hopes the interest seen from investors will quash rumours about its financial health

Metro Bank PLC (LON:MTRO) raised £375mln in less than three hours after kicking off a share placing, £50mln more than the lender had originally sought due to interest from investors.

The challenger bank confirmed on Friday that it closed the fundraising early on Thursday evening after the placing was “significantly oversubscribed”. It had expected to complete the placing by Friday afternoon.

READ: Metro Bank confirms plans for £350mln equity raise after 'false rumours' about financial health

Shares were offered at 500p each, 1,400p below the stock’s closing price on Wednesday and a steep discount to the 2,200 per share investors would have paid before the bank revealed a major accounting mistake in January. In afternoon trading, Metro Bank shares rallied 22.5% higher to 657p.

Metro Bank 'pleased' with investor interest 

"I am really pleased with the support we have received from both existing and new shareholders, and for their confidence and belief in Metro Bank's strategy,” chairman and founder, Vernon Hill, said.

He added: “Although we've faced challenges in the past few months, we remain fully focused on providing the outstanding service and convenience that our customers expect of us. This growth capital will enable us to continue to expand the business and implement our strategic initiatives."

The fundraising will be used to strengthen the bank’s balance sheet and increase the loans book. The funds will also be used to invest in new branches and technology.

Earlier this month, Metro Bank posted a 50% drop in first-quarter profits following a £900mln loans error.

The group lost a small number of large customers after admitting in January that many commercial loans had been incorrectly classified in an accounting error.

The bank has also been under pressure from low interest rates, tough competition and regulatory requirements.

Ahead of the fundraising, a message circulating on WhatsApp groups urged customers to pull money out of their accounts and empty safe deposit boxes because the lender was facing financial difficulties and could go bankrupt.

Metro Bank said there was no truth to the “false rumours” about its financial health. 

Metro Bank could prove a cheap stock if it delivers on targets, says analyst

AJ Bell investment director Russ Mould said the oversubscribed placing should lay to rest the lurid headlines about the company’s financial health and allow it to focus on reassuring customers and shareholders and get back to the day job of accepting deposits and making loans.

"Some may be surprised to see such strong demand for the new shares, which will begin trading on 5 June, pending approval for the issue from shareholders on 3 June, and is unlikely that those investors who funded last July’s £300 million placing at £34.22 are too thrilled by subsequent events," he said. 

“But the plunge in Metro’s shares from £40 last March may mean some investors think the placing price of £5 a share represents a bit of a bargain. The issue of 75 million shares takes the total to 172.4 million, so buyers of the new stock are in effect taking a 43% stake in the bank and they are doing so at a price that comes in below the stated book value per share."

Mould said if the company can deliver on its targets of 20% trend growth in deposits, a cost/income ratio of 60% to 65% by 2023 (compared to 100% in 2018) and a low double-digit return on equity by 2023 then it could prove to be a cheap stock.

However, he added that the burden of proof now lines with the management team after the misadventures of the last year.

 -- Updates share price --

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