Metro Bank has been forced to cancel a bond sale of up to £250m after failing to drum up interest from investors, marking a setback for the lender struggling to recover from an accounting blunder earlier this year.
The challenger bank had been trying to sell its debt to investors to meet EU regulatory requirements, which would help it wind down effectively in a crisis without using taxpayer cash.
Metro launched the sale on Monday, offering bonds with an interest rate of 7.5%, a high figure for a European bank. But even at that rate of return investors snubbed the sale, forcing Metro to cancel the offer by Monday afternoon.
While the lender blamed poor market conditions for a lack of appetite for its debt, others said it signalled that confidence in Metro’s strategy was starting to erode.
John Cronin, a financial analyst for stockbroker Goodbody, said: “It would appear that Metro Bank has failed to secure sufficient interest even at this level, which points to a major lack of confidence in the continued adequacy of the bank’s capital position, as well as its ability to generate sufficient profits in the future.”
He added that it was unlikely that Metro Bank would return to the market later this year to reissue the bonds, and may be forced to ask the Bank of England to postpone a deadline for meeting its minimum requirement for own funds and eligible liabilities (MREL) by the of 2019.
Another failed bond sale could prove embarrassing for Metro Bank, which has been working to repair its reputation following a major accounting mistake earlier this year.
In January Metro Bank revealed it had misclassified loans worth £900m as being less risky than they were. The discovery meant the bank had a smaller capital cushion to protect it from a larger pool of risky loans in the event of a downturn. The mistake prompted an investigation by City regulators, which was recently widened to include Metro Bank’s senior managers. That investigation is still underway.
Metro Bank said in a statement: “Given the current market conditions Metro Bank has decided to not proceed with a transaction at this time. Metro Bank has a strong capital position and therefore the flexibility to raise MREL at the right time for the bank.”