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Bank of England averts mini banking crisis with Metro Bank bailout

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2023-10-10

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The Bank of England appears to have successfully averted a potential mini banking crisis by arranging a bailout for Metro Bank in Britain. Unfortunately, the proposed deal with the bank's largest shareholder, Colombian billionaire Jaime Gilinski Bacal, will result in the complete loss of value for existing shareholders.

As of Friday, the bank was valued at 71.4 million pounds, but on Sunday night, it announced a capital raising deal of at least 325 million pounds and a 600 million pound debt refinancing. According to Reuters, this capital raising includes 150 million pounds in new equity and a 175 million pound issuance of bail-in debt, effectively wiping out existing shareholders.

Additionally, Metro Bank is in discussions regarding the sale of up to 3 billion pounds of residential mortgages. In total, the value of the bailout transactions amounts to nearly 4 billion pounds, suggesting that Metro Bank was technically insolvent and would not have survived the coming week without these significant measures.

The equity raise was led by Metro's largest shareholder, Spaldy Investments, owned by Jaime Gilinski Bacal. After the deal's approval by existing shareholders, Spaldy will become the controlling shareholder with a 53% stake, significantly higher than his previous 9% ownership.

The Bank of England's Prudential Regulation Authority issued a statement welcoming Metro Bank's efforts to strengthen its capital position. The regulator had been urging Metro Bank and its advisors to finalize a deal by the opening of business on Monday.

Prior to last week's troubles, Metro Bank had 2.7 million customers, 76 branches primarily located in the south of England, and held approximately 15.5 billion pounds in UK customer deposits. However, the deal's approval will likely face resistance from some existing shareholders.

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