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Metro Bank Teeters after Bond Sale Fails. Shares Collapsed 95%

September 30, 2019

Metro Bank Teeters after Bond Sale Fails. Shares Collapsed 95%

Hedge-fund manager Steven Cohen and Michael Bloomberg are among those ruing the day they bought the crushed shares of the UK bank touted as a “bargain.”

Even by its own recent standards, Metro Bank has had a torrid week. On Monday, shares of the British retail bank tumbled 5%, on Tuesday, 25%, on Wednesday, 5%, and on Thursday, 4.5%, before staging a brief comeback in the final hours of trading on Friday, to end the week 35% lower. By Friday morning, it was the second most-shorted stock on the FTSE all shares index, behind the collapsed travel & vacation-giant Thomas Cook.

The main trigger for this week’s rout was the bank’s failure on Monday to raise a much-needed £250 million by issuing non-preferred bonds that deeply skeptical investors spurned. Despite trying to lure buyers with an interest rate of 7.5%, double the rate of similar offerings, Metro only attracted £175 million worth of orders, prompting the embattled lender to pull the plug on the bond sale.

“Failure to get enough support for a product that is yielding 7.5% is quite remarkable when you consider how investors are struggling to find generous levels of income in the current market,” said Russ Mould, the investment director of AJ Bell. “It suggests that investors don’t trust the bank or they believe the 7.5% yield is simply not high enough to compensate for the risks of owning such a product.”

Metro Bank opened for business in 2010, becoming Britain’s first new high street bank in over 100 years. One of a handful of so-called “Challenger Banks” — new retail lenders created after the crisis to provide a little more banking competition in a country where the five biggest banks control a staggering 85% of the market — Metro Bank proved particularly adept at luring disillusioned clients from the big banks.

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