Shares in Metro Bank fell more than seven per cent this morning as two US law firms announced they are investigating whether securities fraud took place at the challenger bank.
Pomerantz and Levi & Korinsky have launched probes into activity at the bank, and Glancy Prongay & Murray said it would continue with its investigation that began earlier this month.
“The investigation concerns whether Metro Bank and certain of its officers and/or directors have engaged in securities fraud or other unlawful business practices,” Pomerantz said in a statement.
Both Glancy Prongay & Murray and Levi & Korinsky said they were investigating “possible violations of federal securities law” concerning the company and its officers. Metro Bank has denied that the announcements caused the share price drop.
All three New York-based law firms outlined the troubles the embattled lender has faced since it revealed a major loans blunder in January this year, which sparked the worst one-day share price drop for a British bank since the financial crisis, in their statements.
This morning’s share price fall comes ahead of an extraordinary general meeting on Monday, where investors are expected to approve a £375m capital raise.
Russ Mould, investment director at AJ Bell, said that some investors could be tempted to take profits ahead of the meeting.
"Assuming that approval is forthcoming, some 75m new shares will start trading at 8am on 5 June," Mould told City A.M.
"That is a big number compared to the prior share count of some 97.4m and maybe some traders are taking evasive action ahead of that."
The company’s shares, which had dropped more than 70 per cent after it revealed a major loans blunder in January, made a comeback earlier this month after the challenger bank raised £375m of capital just hours after launching a discounted funding round.
In January, the bank admitted that some commercial loans had been wrongly classified and should have been among its risk weighted assets.
The Bank of England, not Metro Bank, discovered the issue at the start of 2019. Since then shares have fallen 68 per cent.
However, key figures at the bank survived a recent annual general meeting after shareholder advisory groups had urged investors to block their re-elections.
Chairman Vernon Hill, boss Craig Donaldson, and directors in charge of risk, Stuart Bernau and Eugene Lockhart, remain in place despite one shareholder calling the meeting "appalling".
A spokesperson for Metro said: "Metro Bank has engaged heavily with investors over the last few months and their strong support for the business was recently demonstrated in the successful £375m capital raise.”