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Investors snub £250m bond sale by Metro Bank

Geoff Riley

24th September 2019

The challenger brand Metro Bank is going through some tough times at the moment, not helped by the mis-classification of loans worth nearly £1 billion earlier this year. A new bond issue worth £250m has been pulled.

The bank is required to raise extra finance to help secure their balance sheet in the event of a rise in bad debts (where the borrower fails to repay some or all of a loan). However, even though Metro was offering an interest rate (yield) of 7.5% on their newly-issued bonds, investor appetite has been low resulting in the bond issue being pulled for the time being. It is a timely reminder of the barriers that can threaten the viability of new entrants into the commercial banking sector. Metro Bank has an estimated 1.2-1.4 million customers whereas Lloyds Banking group has in excess of 25 million customers with Barclays not far behind.

The main challenger banks in the UK are Metro Bank, Adelmore Bank, Co-operative Bank, Clydesdale Bank, Nationwide Building Society, One Saving Bank, Secure Trust Bank, Shawbrook Bank, TSB Bank and Virgin Money Group. Metro Bank launched in 2010.

If a bank is unable to raise the necessary finance even when offering a tasty yield of 7.5% (in this era of ultra low interest rates) the signs are not good. Might Metro be a target for takeover over the next twelve months?

Geoff Riley

Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.

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