Metro Bank had its share drop more than a whopping 35% on Tuesday. It marks the lowest share price in the history of the banking firm. This resulted from a botched bonds sale the bank had launched on Monday but canceled it in the afternoon due to a lack of investors.
Even with a rather impressive 7.5% interest rate on the bonds, the banking firm couldn’t reach the £200 million to £250 million target it had established. Investors were just too wary of Metro Bank after the bank disclosed a calculation error and went under investigation because of it.
Of the £250 million they wanted to gain, they only managed around £175 million of it before they cut sales and called the entire venture a costly failure. The resulting share plummets caused the bank to lose almost 90% of its shares from the beginning this year.
Lack of Trust
AJ Bell’s investment director Russ Mould commented that the entire event had given Metro Bank a major blow.
He explained exactly how remarkable it is to suffer such a low bond sale with an interest rate of 7.5% being as high as it was. He said that the evidence shows that investors did not think Metro Bank was a worthwhile venture. Or maybe that the already impressive 7.5% interest was too low to bring investors back into the fold.
Trying to save face or being genuine would be impossible to tell, but Metro Bank released a statement reporting their 1.8 million customer accounts in the month of July. Using this, they insist they are in a strong position, and they canceled the sale due to “tough market conditions.”
The Classic Blunder
Metro Bank had revealed that they had miscategorized a hefty £900 million in loans as less risky than they actually were. This means that, if these loans don’t pan out, Metro Bank would markedly smaller money cushion to protect themselves from losses.
This costly error, in turn, caused an investigation to pop up from financial regulators as they tried to figure out how this all happened. The investigation itself had recently turned its eyes on the bank’s senior managers, but it is still ongoing at the time of this writing.
The Future of Metro Bank
Having started nearly ten years ago in 2010, the bank now runs the risk of being forced to ask the Bank of England to delay its deadline to meet the Minumum Requirement for Own Funds and Eligible Liabilities.
This requirement had been put in place to help stop the Bank of England from bailing out large banks for large amounts of debt.
Furthermore, analysts suspect that Metro is backing itself in a corner, trapped in its own blunder and eventually falling prey to a takeover from one of their rivals.