Metro Bank ‘to tap investors for another £300m’ after accounting error blew a hole in its balance sheet
Metro Bank could be forced to tap investors for £300million after an accounting error blew a hole in its balance sheet.
The High Street lender realised last week it had underestimated the amount of reserves needed to guard against the risk of commercial and buy-to-let property loans going sour.
Analysts are braced for Metro to ask for £300million so the gap this has created can be plugged – possibly as soon as next month when it reports annual results.
Shortfall: Metro realised last week it had underestimated the amount of reserves needed to guard against the risk of commercial and buy-to-let property loans going sour
If the fundraising goes ahead, Metro will have sucked in an extra £850million since the beginning of 2018.
Shares have fallen nearly 60 per cent over the same period, knocking £1.8billion off the value of the bank. Meanwhile, hedge funds are increasingly taking bets against Metro.
The percentage of shares being short-sold – meaning investors make money if the stock price falls – has risen from 0.55 per cent to 7.86 per cent in the past year.
Any further fundraising is likely to pile pressure on Metro’s boss Craig Donaldson. Last year Metro raised £250million on the debt markets, and Donaldson vowed it would not have to seek further cash from shareholders.
But he changed his mind months later and issued £303million of new stock to fund rapid growth.
Ian Gordon, an analyst at Investec investment bank, said that Metro is likely to raise another £300million within months.
The alternative would be to slow down growth, he said, which would act as a drag on profits.
He added: ‘This mistake is deeply embarrassing – I don’t recall any precedent for it. For me, it was a jaw-dropping disclosure.
‘In terms of the amount to fill the hole, it would be slightly lower than £300million, but since this is what they raised last time I think it’s a fair bet they will do so again.’
Metro was founded in 2010 by American Vernon Hill, who now serves as its chairman.
The 73-year-old tycoon – whose Yorkshire Terrier, Sir Duffield II, is the bank’s mascot – has previously come under fire over £21million in payments from Metro to his wife’s architecture firm.
Shirley Hill’s company Interarch received the cash for designing its branches and working on branding. The payments infuriated investors such as Royal London.
Shares in the lender, which has more than 60 branches, fell 38.9 per cent when the mistake was announced last week.
Yesterday they closed down 0.1 per cent, or 2p, at 1439p.