Shares in embattled lender Metro Bank have come under renewed pressure after a statement over the weekend that its plans to raise £350m in fresh capital were “well advanced”.
The bank said it was in “final discussions” with existing shareholders and new investors over the share placing – after Sky News revealed that details were set to be unveiled this week.
Metro Bank has been forced to raise fresh capital after a major accounting error first disclosed in January, which has spooked investors and sent its market value tumbling.
Shares were down by 7% in early trading on Monday, leaving them 70% lower for the year to date.
Metro Bank’s problems were compounded over the weekend when it was forced to deny “false rumours” circulating on social media – with a WhatsApp message advising people to withdraw money from their accounts and empty their safe deposit boxes.
With customers rushing to some of its branches in west London, Metro Bank said in a statement: “We’re aware there were increased queries in some stores about safe deposit boxes following false rumours about Metro Bank on social media and messaging apps.
“There is no truth to these rumours and we want to reassure our customers that there is no reason to be concerned.”
Meanwhile, in an interview with the Financial Times, chief executive Craig Donaldson revealed that Metro Bank was considering plans to sell £1bn worth of loans at the centre of the accounting blunder that has plunged the bank into crisis. However, he stressed no final decision has been made.
The error relates to the way it had classified the riskiness of certain loans – with some being riskier than previously assumed.
Under banking rules, this means Metro Bank must hold more capital on its books to guard against the danger of those loans going bad.
The impact of the mistake was recently illustrated by quarterly results showing that Metro Bank’s profits had halved and it had suffered an exodus of corporate customers.
Rumours in recent days that the lender would need to raise more than that sum through a deeply discounted rights issue were dismissed this weekend by insiders.
One City source said Metro Bank and its advisers had opened formal talks with institutional investors and were encouraged by their appetite to participate in the latest fundraising.
Reports that the company was struggling to secure the new funds were misguided because three investment banks had already guaranteed to underwrite the capital-raising, they added.
Metro Bank has 1.7 million customers and describes itself as “the revolution in British banking”, employing a model founded on friendly customer service.
However, its recent travails have dented its hopes of growing its deposit base by 20% this year.
Russ Mould, investment director at AJ Bell, said: “While Metro Bank has done its best to reassure customers that their money is safe, pictures of one of its branches packed with individuals wanting to cash out is damaging to its reputation and could hurt new customer growth, at least in the short term.
“Assuming it raises £350m later this week, Metro Bank will then have to prove to the market and its customers that the business is robust and capable of growing without needing regular capital injections and also without a repeat of the recent accounting error.”