UK challenger Metro Bank is gearing up for its unconventional stock market float next week, looking to raise £400m from mostly institutional investors. On Monday Metro will have a so-called introduction to the market, meaning it will float without a public sale.
In February Metro Bank cut the offer price in its fundraising round from £24 to £20 a share and dropped its target total from £500m to £400m due to a severe sell off in banking stocks which have since somewhat recovered. The branch focused bank, founded by American banker Vernon Hill, originally set out to raise £300m before increasing the target to £500m after stronger than expected demand.
The raising will give the bank a valuation of £1.6bn, twice its book value.
In comparison TSB was valued at £1.7bn, around one times book value when it was carved out from Lloyds Banking Group and sold to Spanish bank Banco Sabadell last year.
The deadline for existing shareholders, including global asset managers Fidelity, Blackrock, and Wellington Management, to commit to their current holding is tomorrow at 4pm. Metro Bank will then hold a shareholder meeting on Friday ahead of the float on Monday. The bank will announce tomorrow after 4pm how much it has managed to raise.
The shares will be available to retail investors on 10 March, when Metro Bank are set to appear at the London Stock Exchange.
Metro Bank currently has around 400 shareholders, none holding more than 10 per cent of the business.
“We’re quietly confident,” a source close to the bank told City A.M. “The volatility in the market has been there since January, nothing has changed in recent weeks. Our investors are in it for the long term.”
The bank has been growing its branch network since it launched in 2010, while most high street banks are closing down branches. It has a target of 200 branches, which it refers to as stores, by 2020 though is currently woefully off course with just 40 and is opening around 10 per year.
Metro has had success in attracting customer deposits, which grew 78 per cent in the last year and hit £5.1bn in 2015, though has struggled to match lending growth.
The challenger has a loan book of £3.5bn, up 122 per cent on the year, giving it a loan to deposit ratio of 69 per cent. A typical retail bank targets a loan to deposit ratio of around 90 per cent.
Metro has never managed to turn a profit however, posting an underlying loss after tax in the fourth quarter of 2015 of £10.1m, down from a loss of £10.7m in the previous quarter.
Rival challenger Virgin Money has today reported a gigantic leap in its pre-tax profit of 306 per cent to £138m for 2015, compared to £34m a year earlier.
Chief executive Jayne-Anne Gadhia warned however that due to changing tax rates, capital controls, and outlook for low interest rates mean the situation for retail banks doesn’t look great:
The macro environment has changed materially for banks like Virgin Money over the past 12 months. In particular, the year has seen the introduction of a new bank tax surcharge, the timetable for UK rate rises continues to be pushed back and we have seen regulatory concerns in the buy-to-let mortgage market. In addition, there are the emerging capital regulations from Europe. This has resulted in uncertainty relating to the potential for continued growth and profitability for banks of our scale in the sector.