What’s happened at Metro Bank – and is my money safe?

Metro Bank has secured a last minute rescue deal after its share price plunged last week following concerns over its finances.

The bank, which has 2.7m customers, has agreed a £325m capital raise and £600m of debt refinancing, in a deal that will help revive its strained balance sheet. 

The bank needs more money to ensure it can continue to expand and retain the ability to lend. Its shares have fallen by as much as 30pc, leading some to question the bank’s sustainability. 

Metro Bank has previously said it is not facing any immediate threat and is operating as normal. Its branches have been on British high streets since 2010 when it was launched by the American billionaire Vernon Hill. Today, the bank holds about £15.5bn worth of UK customer deposits.

Three regional American banks collapsed earlier this year followed by Credit Suisse, the biggest lender in Switzerland.

If you are a Metro Bank customer currently concerned about what this all means for you and your money, here is everything you need to know.

What’s happening?

Normally when interest rates rise, as they have been since the end of 2021, banks’ profit margins also increase. They are typically able to make more money from the difference between the rates they are able to borrow at and in turn lend to homeowners or pay out as interest on savings accounts.

But there have been concerns about Metro Bank stretching back years. After listing at £20 a share, prices have crashed steadily and dramatically since 2018 and now stand below 50p.

As the leading so-called “challenger” bank, Metro invested heavily in maintaining a branch network, at the same time as the incumbents dramatically cut back. It has also proved far harder to prise customers away from the established brands despite poor customer service over many years.

Analysts have said the intervention by the Prudential Regulation Authority showed the banking watchdog has “serious concerns about the ongoing viability of the business”.

Metro’s finances have been put under pressure by rising interest rates. The bank has £350m in debt coming due in October 2025, but the deal announced on Sunday will extend the deadline for refinancing of this capital back to 2028. 

Is my money safe?

The bank assured its customers that there is nothing to fear. 

However, if you are concerned about your finances, you will be glad to hear that in the worst-case scenario your money is protected – to a point. Metro Bank is a UK regulated bank, meaning its customers’ accounts are covered by the Financial Services Compensation Scheme (FSCS). 

FSCS protects up to £85,000 of deposits per individual, per financial institution, and also covers mortgages, insurance and investments. This means that – if Metro Bank were to cease trading – your money would be compensated up to this amount. 

There are some circumstances where you could be covered for more than £85,000. Protection for “temporary high balances” includes money resulting from house sales or inheritances. In some cases, you could be covered up to £1m for six months. 

Gary Rycroft, of solicitors Joseph A Jones & Co, said: “A common sense approach is for any customers with deposits in excess of the FSCS figure of £85,000 to withdraw funds over, say £80,000, so the funds that remain are protected and there is in effect headroom to cover interest which may accrue.”

What about my mortgage? 

Metro Bank is still in talks about selling £3bn worth of its home loans to bolster its balance sheet, and has reportedly approached Lloyds and NatWest. As the smaller bank looks to fortify its balance sheet, reports say it has contacted its larger rivals about buying around 30pc of its mortgage book. NatWest has declined to comment. 

If you still have concerns about your mortgage, Karen Noye, mortgage expert at Quilter, a wealth manager, said you should not panic about the fate of your home. 

“The UK’s robust regulatory structure has provisions in place to safeguard customers in such circumstances. Typically, the most valuable asset of a failing mortgage lender is its mortgage book, which lists all of its outstanding loans. 

“When a lender goes under, administrators usually aim to sell this asset to another lender. 

“For homeowners, this would mean that while they would owe their mortgage to this new lender, the conditions of their loan – such as interest rates, payment amounts, and loan duration – would remain unaltered,” Ms Noye said. 

The FSCS might also offer compensation if the worst-case scenario were to occur. If a homeowner has overpaid or believes they have a valid claim against a defunct lender, the scheme might step in to offer compensation. 

However, it’s worth noting that the FSCS will not pay off a mortgage balance.

Ms Noye said: “In essence, while the prospect of a mortgage lender’s insolvency might be daunting, homeowners in the UK are well protected by the nation’s financial regulations. Maintaining regular mortgage payments and staying informed are the primary responsibilities of the homeowners.”

Mr Rycroft added: “For now, if customers are on a low fixed rate it is likely sensible to remain with Metro Bank.

“If the situation at Metro Bank worsens, the mortgage business may be sold but the fixed rates and other deals in place now should remain as they are in effect a binding contract to offer borrowing under the terms of the deal agreed already.”

How will Metro raise the money it needs?

The deal agreed in principle late Sunday night will see the Colombian billionaire, Jaime Gilinski Bacal, lead a £150m equity raise via his investment company Spaldy Investments. 

Mr Gilinski Bacal is one of the wealthiest people in Latin America. His stake via Spaldy in Metro Bank will rise from 9.2pc to 53pc if the deal is completed, and existing investors will see their holdings heavily devalued. 

Metro will sell shares at 30p in the equity raise, at a deep discount to the closing price of 45.25p on Friday.

The equity raise is conditional on refinancing the debt and raising £175m of new regulatory capital. The bank has said that it is confident that it will complete all three parts of the transaction before the end of the year. 

Talks are still ongoing with other banks about the possible sale of £3bn worth of its home loans.