By Iain Withers and Simon Jessop
LONDON (Reuters) – Metro Bank shares surged on Friday after the bank’s successful 375 million pound fundraising to repair its stretched balance sheet which was welcomed by the Bank of England.
Shares in the embattled bank jumped more than 23% in early trading to 662 pence but they are still down sharply from January when they were worth more than 20 pounds.
The nine-year-old challenger bank’s market value plunged after disclosing in January that it had underreported the risk of its loan book by nearly 1 billion pounds, hitting its capital levels.
Metro’s fundraising late on Thursday was oversubscribed enabling the bank to raise more than its planned 350 million pounds.
The Prudential Regulation Authority said the bank was “profitable and continues to have adequate capital and liquidity to serve its current customer base.”
Investor and customer confidence in Metro had been shaken by corporate governance concerns and its tumbling stock price which wiped more than 1.5 billion pounds off the bank’s market value.
The bank was also hit by some customers pulling their money out since the problems emerged.
Metro Bank said on Thursday that some customers pulled deposits between May 10 and May 13 after media speculation about the company’s financial health, but said this position was “stabilising”.
The fundraising will bolster Metro’s finances, but question marks remain over its growth plans and the culpability of top managers for the errors after Chief Executive Craig Donaldson’s offer to resign was rejected by the board.
Regulators at the Financial Conduct Authority and Prudential Regulation Authority have given no details on their investigations into the error or the possible penalties or sanctions which could arise.
John Cronin, analyst at Goodbody, said a successful fundraising would reassure nervous investors but that Metro still faced challenges.
“We don’t know what the quantum of deposit outflows has been, we don’t have any certainty regarding management longevity, and I believe the 2023 double digit RoE (return on equity) target is unachievable,” he said.
The bank has said it hopes the fundraising will enable management to proceed with plans to expand its branch network and increase its share of Britain’s retail banking market.
In Britain, customer deposits are guaranteed up to 85,000 pounds if a bank gets into financial difficulties and post-financial crisis rules mean banks are now structured to ensure deposits can be moved to another bank more easily to ensure continuity of service.
(Reporting by Simon Jessop and Iain Withers; editing by Rachel Armstrong and Jane Merriman)