Metro Bank has raised £375mn ($478mn) to repair its balance sheet, giving the British bank breathing space ahead of a potentially fractious annual meeting tomorrow.
The nine-year-old challenger bank’s market value fell more than £1.5bn after disclosing in January it had under-reported the risk of its loan book by nearly £1bn, hitting its capital levels.
Shares in the bank jumped more than 25% on Friday following the successful fundraising.
They are still below their value in January of more than £20.
The Bank of England welcomed the capital increase, saying the bank was “profitable and continues to have adequate capital and liquidity to serve its current customer base”. But Metro Bank’s management remains under pressure and chairman Vernon Hill and some of his board are facing growing calls to resign ahead of the bank’s annual shareholder meeting tomorrow.
CEO Craig Donaldson has previously offered to resign, but this was rejected by the bank’s board.
Legal & General Investment Management, one of Metro’s biggest institutional investors, said it would vote against Hill and others at the annual meeting.
Royal London Asset Management, said it would vote against the re-election of eight directors, including Donaldson and Hill.
Shareholder adviser Glass Lewis has also recommended investors oppose Hill’s re-election, while another investor advisory service ISS advised them to withhold support from Hill and other directors, including Donaldson.
Earlier this month, a filing showed Fidelity Management & Research, once Metro Bank’s second-biggest investor, had cut its stake by nearly a third.
In the fundraising prospectus published on Friday, there were signs the bank is starting to react to some of the investor criticism.
The bank disclosed Metro would stop using the services of InterArch, an interior design company owned by Hill’s wife Shirley Hill, by the end of 2020.
Since it was founded Metro has paid InterArch more than 20mn pounds for work on the design of its branches, despite investors raising concerns about the arrangement.
Analysts said hedge funds scrambling to unwind short bets on Metro — one of the most shorted stocks in London before Friday’s trading — was helping to power the rally in the shares.
Short bets involve paying to borrow the shares before selling them on to another investor, hoping to buy them back at a lower price before returning the stock to the original owner.
Data from Astec Analytics showed the cost to engage in this trade on Metro shares was the highest for at least 15 months on Thursday, with 9 out of every 10 shares available to be borrowed out on loan.
That helped to drive the rally on Friday as some funds rushed to buy back the shares in the market and return them, a so-called “short squeeze”. Nine funds had short positions equating to more than 0.5 % of Metro stock at the end of Thursday, the level at which the British markets regulator demands disclosure.
Odey Asset Management’s was the largest position, at 3.83 %.
“Given a large short base, we could see some pricing support tomorrow (Friday), though we remain cautious on the longer-term outlook,” Morgan Stanley analysts said late on Thursday.
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