Metro Bank is a British retail bank with 76 branches in the UK and roughly 2.7 million customers, they hold around £15.5bn worth of customer deposits. They were formed in 2010 and were the first high-street bank to open in the UK in over 100 years. They differentiated themselves by opening 7 days a week and having American-style branches.
Recently, the bank has found itself in financial trouble; it needs more money to keep growing. Without this extra funding, it might have difficulty giving out loans. The interest on loans makes up a huge portion of profit for them. With fewer people taking out mortgages and fewer mortgage approvals in2023 than in previous years, it has been hard for them to generate that profit.
It's operating on the edge of its capital requirements - assets needed on hand that can be sold if financial problems occur.
The issue is that Metro Bank does not have a good reputation with investors. They came into controversy in 2019 after misreporting assets used to calculate how much capital it needed to hold. It meant it provided false information on how much money it had and did not set aside enough for a financial safety cushion. It is like saying you have more money saved than you do, so you might not have enough for a rainy day. It ties into their current troubles with capital requirements. This caused a massive drop in their stock price, which is the company's value on the stock market. It was the most significant drop in a UK bank's stock price in one day since the 2008 financial crisis. The bank and two former executives were subsequently fined £10 million in 2022 by the Financial Conduct Authority (the UK’s financial regulatory body). Fast forward to 2023, a Colombian billionaire (Jaime Gilinski Bacal) is providing £102 million to help as a last-minute rescue. In return, he will become the majority owner of the bank (53%). They initially had to refinance at least £350 million of debt and have managed to refinance £600m. Refinancing lawyers would have looked over their current debts. They may have negotiated with creditors to get better interest rates, lower monthly payments or change the terms of existing debt. As with any lawyer, they would have done a lot of document reviewing and drafting.
Metro Bank has decided to restructure its debt, which means changing the terms of how they pay it back. Some bondholders will only get back 55-60% of their initial investment. Imagine you loaned your friend £100, instead of returning the full £100 back to you, they are only able to give back £55 to £60. Metro Bank borrowed money from people, but now they're in trouble they can't pay it all back. As Metro Bank plans to restructure its debt, external restructuring lawyers may work on financing deals. They ensure the terms benefit their clients, whether Metro Bank, investors or bondholders.
To improve finances, Metro Bank is also reportedly planning to sell £3 billion worth of residential mortgages to Lloyds and NatWest, though none of the banks have confirmed as of yet. This means their customers' mortgage loans will be “sold off” to other banks so they can get back the money they loaned. External lawyers and in-house counsel specialising in banking finance may handle banking and loans. Real estate lawyers may draft the legal agreements for selling the mortgages to Lloyds and NatWest, review and advise on property titles, contracts and any other legal issues related to the real estate.
As we have seen with Credit Suisse and UBS, a takeover offer from rivals is possible, which could trigger Merger and Acquisition activity in the banking and legal sector. Investors may become cautious about investing in banks facing similar challenges. Other financial institutions may see changes in their stock prices due to uncertainty in the market.
I believe Metro Bank's last-minute bailout by the billionaire is a great step for the bank. While bondholders may receive less than the total they invested, this move guarantees the bank's survival and guarantees customers are the top priority, especially in this economy. Metro Bank ensures they are okay and it looks like they are. Still, their struggles highlight challenges in the financial institution world, especially after Silicon Valley Bank and Credit Suisse's overnight collapses.
