In recent weeks, Metro Bank has dominated headlines for all the wrong reasons. Speculations about its financial stability, share price plunge, and efforts to raise a substantial amount of capital have left investors and customers alike anxious about the future of this once-promising challenger bank. While it’s not the first institution to face such troubles recently, it’s vital to understand the intricacies of Metro Bank’s predicament and how it might impact you as a customer or investor.
A Rocky Road to Stability
Metro Bank’s recent woes began in mid-September when the Bank of England made a significant announcement. The central bank stated that it would not provide capital relief for mortgage lending to banks until at least 2024. This decision sent shockwaves through the financial industry, impacting banks like Metro, which had been striving for approval from the Prudential Regulatory Authority (PRA) to use internal models for their residential mortgage business. These internal models would allow Metro Bank to calculate loan risk based on its history, potentially reducing the amount of capital it needed under Basel III and Basel IV regulations.
In response to these challenges, Metro Bank engaged in discussions with industry peers, including HSBC, NatWest, and Lloyds, about selling a portion of its mortgage book to strengthen its balance sheet. The bank also enlisted the expertise of Morgan Stanley, particularly Guillaume Gabaix, a seasoned banker known for advising on significant acquisitions.
These difficulties at Metro Bank are not isolated incidents in the banking world. Several other lenders, including Credit Suisse, Silicon Valley Bank, Signature Bank, and First Republic, have faced financial crises and even collapsed in the past year.
Metro Bank’s Share Price Plunge
🚨Bank Crisis: Metro Bank shares plunge -62% since the last month as it tries urgently to raise £600m. pic.twitter.com/cCbQcsFqgo
Reports of Metro Bank’s need to raise to £600 million sent its shares tumbling by as much as 30%. The bank, in response, attempted to reassure investors about its financial position. Although it did not confirm the specific amount it sought, Metro Bank emphasised its commitment to exploring options to enhance its capital resources.
This decline in share prices marks another blow for Metro Bank, which had seen its stock price steadily decrease since 2018 when it was listed at £20 a share. Today, it stands at less than 50p, a far cry from its peak valuation of around £3.5 billion.
In part, the bank’s struggles can be attributed to its unique positioning as a “challenger” bank in the UK market. Metro Bank invested heavily in maintaining a branch network, offering services seven days a week, while established banks shifted towards digital operations. Despite its customer-centric approach, Metro Bank faced difficulties in attracting customers away from traditional high street banks.
Is Your Money Safe with Metro Bank?
Amidst the turmoil, you may be wondering about the safety of your money with Metro Bank. The bank has assured its customers that it is not facing an immediate threat and continues to operate normally. Importantly, Metro Bank is a UK-regulated bank, and its customers’ accounts are protected by the Financial Services Compensation Scheme (FSCS).
The FSCS protects deposits up to £85,000 per individual per financial institution. It also covers mortgages, insurance, and investments. If Metro Bank were to cease trading, your funds would be compensated up to this amount. Additionally, provisions for “temporary high balances,” such as proceeds from house sales or inheritances, may provide extended coverage of up to £1 million for six months.
Experts advise customers with deposits exceeding the £85,000 limit to consider withdrawing funds above this threshold to ensure protection, allowing headroom for any interest that may accrue.
Concerns about Your Mortgage?
If you hold a mortgage with Metro Bank, you might wonder about its fate. Reports suggest that Metro Bank has approached Lloyds and NatWest to explore the sale of £3 billion worth of its home loans, a move aimed at shoring up its balance sheet. While this situation may raise concerns, experts suggest there’s no need to panic about the fate of your home.
UK regulations are robust and designed to safeguard homeowners in case of a mortgage lender’s insolvency. Typically, the mortgage book, listing all outstanding loans, is a valuable asset that administrators seek to sell to another lender. For homeowners, this means that while your mortgage may be transferred to a new lender, the terms of your loan, including interest rates, payment amounts, and loan duration, usually remain unchanged.
The FSCS might also provide compensation in certain circumstances, such as overpayments or valid claims against a defunct lender. However, it’s important to note that the FSCS does not pay off mortgage balances.
In essence, homeowners in the UK enjoy solid financial protections, and staying informed and making regular mortgage payments are vital responsibilities.
How Will Metro Bank Raise the Needed Funds?
Metro Bank is exploring various options to secure the capital it requires. These options include selling shares, bonds, and possibly some of its assets, such as mortgages. The bank remains optimistic about its future, pointing out that it returned to profit in the first half of the year, expecting continued growth in personal and business current accounts and customer acquisition.
As Metro Bank navigates these challenging waters, the question remains: Will it find enough backers and investors to conduct a successful fundraiser?
In conclusion, while Metro Bank faces significant challenges in 2023, it is essential to remember that your money is protected up to £85,000 through the FSCS if you are a customer. If you hold a mortgage with the bank, UK regulations are designed to safeguard your interests. Metro Bank’s future may still hold promise, but it must navigate the stormy seas of the financial industry with caution and innovation.
