Metro Bank

[hiriskpaul]

Metro has 2.8m customers and 76 branches according to recent articles. The UK has 75 million accounts according to the FCA. There are 5,500 bank and building society branches:

https://www.thisismoney.co.uk/money/sav ... treet.html

Metro has at least 3.7% of the customers, and 1.4% of the branches. It would not be accurate to describe it as a branch based bank. It is more than twice as digital as the market as a whole. Metro is opening branches while others are closing theirs, but they can hope gain a bigger share of the customers.

Yes, there is a lot of rubbish being put out about Metro. They need more branches, not fewer.

[BondSquared]

It's now Day 1 after a weekend where the UK bank supervisor frantically got involved stakeholders, potential rescuers etc around a table to avert a bank failure. Bondholders have seen their investment cut and extended, shareholders diluted, the stock is down 99% from its highs.

However you want to describe Metro Bank's strategy - digital, branch-based, dog biscuit-based, or none - it most definitely has failed, else we wouldn't have seen all the drama listed above (and more).

Separately, I agree bondholders got a pretty good deal, given the circumstances.

What Metro Bank needs most urgently is a new management team.

[88V8]

....A 40% haircut, rising to 45% if 75% (by value) of noteholders of the Tier 2 Instrument do not enter into lock-up agreements supporting the Debt Refinancing by 13 October 2023...

I tried just now emailing the Company Sec and Investor Relations to complain about the short voting deadline. It seems to me so impractically quick that it could almost have been designed to increase the haircut.
Neither of their email addresses on their website is working, and the telephone rings out.

No corporate action yet from ii.

Not happy!

V8

[hiriskpaul]

....A 40% haircut, rising to 45% if 75% (by value) of noteholders of the Tier 2 Instrument do not enter into lock-up agreements supporting the Debt Refinancing by 13 October 2023...

I tried just now emailing the Company Sec and Investor Relations to complain about the short voting deadline. It seems to me so impractically quick that it could almost have been designed to increase the haircut.
Neither of their email addresses on their website is working, and the telephone rings out.

No corporate action yet from ii.

Not happy!

V8

We may not see one. I suspect they already have verbal commitment of 75%, the short deadline to encourage those involved to get their paperwork done promptly.

They need the lockups in place before they can issue the prospectus for the new paper. We will likely get a corporate action for that.

Personally I would like to see the process dragged out so I maximise the 9.139% income!

I still have some concerns how retail might end up being treated. We might only be offered cash instead of the new 14% bond.

[88V8]

I tried just now emailing the Company Sec and Investor Relations to complain about the short voting deadline. It seems to me so impractically quick that it could almost have been designed to increase the haircut.
Neither of their email addresses on their website is working, and the telephone rings out.
No corporate action yet from ii.

We may not see one. I suspect they already have verbal commitment of 75%, the short deadline to encourage those involved to get their paperwork done promptly.
They need the lockups in place before they can issue the prospectus for the new paper. We will likely get a corporate action for that.
Personally I would like to see the process dragged out so I maximise the 9.139% income!
I still have some concerns how retail might end up being treated. We might only be offered cash instead of the new 14% bond.

You appear to be right about the CA, as ii now say they have not been asked to raise one.

If we are only offered cash, 60% of nominal, or 60% of a recent price, hmmm.

V8

[hiriskpaul]

We may not see one. I suspect they already have verbal commitment of 75%, the short deadline to encourage those involved to get their paperwork done promptly.
They need the lockups in place before they can issue the prospectus for the new paper. We will likely get a corporate action for that.
Personally I would like to see the process dragged out so I maximise the 9.139% income!
I still have some concerns how retail might end up being treated. We might only be offered cash instead of the new 14% bond.

You appear to be right about the CA, as ii now say they have not been asked to raise one.

If we are only offered cash, 60% of nominal, or 60% of a recent price, hmmm.

V8

I am sure that if we were excluded from the bond exchange we would be offered 60% of nominal cash, plus accrued.

[BondSquared]

Background story on last weekend's Metro Bank rescue:

10/10/2023 00:01:00 [BN] Bloomberg News
Banker Planned Metro Bank Rescue From Miami’s Billionaire Bunker

Moderator Message:
It is not permitted to copy entire articles from other sources, for copyright reasons among others. What is permitted is a brief synopsis and a link to the original source.

I am deleting the following post for the same reason.

TJH

[88V8]

You appear to be right about the CA, as ii now say they have not been asked to raise one.
If we are only offered cash, 60% of nominal, or 60% of a recent price, hmmm.

I am sure that if we were excluded from the bond exchange we would be offered 60% of nominal cash, plus accrued.

And if the 14% is a 100k clip, assuming that many PIs only hold the min clip of the 5.5s, any CA would have to provide for PIs to chip in more cash. Probably not worth Metro's bother for a small ££ input, especially if it's oversubscribed.
Guess one could always buy the 14s after launch, hard to see them trading much above par.
Probably not inclined.

V8

[hiriskpaul]

I am sure that if we were excluded from the bond exchange we would be offered 60% of nominal cash, plus accrued.

And if the 14% is a 100k clip, assuming that many PIs only hold the min clip of the 5.5s, any CA would have to provide for PIs to chip in more cash. Probably not worth Metro's bother for a small ££ input, especially if it's oversubscribed.
Guess one could always buy the 14s after launch, hard to see them trading much above par.
Probably not inclined.

V8

I sent an email to the company secretary to be mindful of retail investors. I also requested a dealing size of not more than 10k nominal on the new T2. We will have to see what happens. Prospectus probably 3-4 weeks away yet.

75% hurdles achieved: "Metro Bank is pleased to announce receipt of over 75% support commitments from Tier 2 and MREL noteholders for Debt Refinancing"

https://www.investegate.co.uk/announcem ... f-/7810362

[88V8]

And if the 14% is a 100k clip, assuming that many PIs only hold the min clip of the 5.5s, any CA would have to provide for PIs to chip in more cash. Probably not worth Metro's bother for a small ££ input, especially if it's oversubscribed.
Guess one could always buy the 14s after launch, hard to see them trading much above par.
Probably not inclined.

V8

I sent an email to the company secretary to be mindful of retail investors. I also requested a dealing size of not more than 10k nominal on the new T2. We will have to see what happens. Prospectus probably 3-4 weeks away yet.

If the 5.5s exchange at 60% and one can buy them around 48%(?) tempting to buy another clip.
But then if the wheels come off they could be more fully bailed-in.
Anyone tempted?

V8

[hiriskpaul]

I sent an email to the company secretary to be mindful of retail investors. I also requested a dealing size of not more than 10k nominal on the new T2. We will have to see what happens. Prospectus probably 3-4 weeks away yet.

If the 5.5s exchange at 60% and one can buy them around 48%(?) tempting to buy another clip.
But then if the wheels come off they could be more fully bailed-in.
Anyone tempted?

V8

I have thought about this, but not been able to push the button just yet. It might be academic though. I asked HL about prices last week and they said none were available in a size that would interest me. They did say if I wanted 2m or more they might be able to do something. A bit more than I had in mind!

[BondSquared]

I sent an email to the company secretary to be mindful of retail investors. I also requested a dealing size of not more than 10k nominal on the new T2. We will have to see what happens. Prospectus probably 3-4 weeks away yet.

If the 5.5s exchange at 60% and one can buy them around 48%(?) tempting to buy another clip.
But then if the wheels come off they could be more fully bailed-in.
Anyone tempted?

V8

The 60% level is, bond pricing-wise, a numeraire. You can't exchange your old T2 at 60 cents and then sell the new 10NC5 at guaranteed par 100 and hence monetize those 12 cents between 48 and 60.

There is no arb here, it just means that the market implicitly prices the new 10NC5 T2 at 80 cents (rather than at 100 / par); 80% * 60c = 48c, with 60c being the new post-haircut principal equivalent (I assume you get bond with a par value of 100 but only 60% principal of your old T2 holding principal) and 48c being the market price of the old T2. Back of envelope calc, Ignoring accrued and settlement timing here.

Another way of looking at it is that the market haircut - not the contractual one - is 52% rather than 40%, as the market assumes an immediate 20c discount to par (=80c) for the replacement.

Now you may think that an implied market price of 80c for the new 10NC5 14% T2 is too cheap (then buy the old T2 now) or too expensive (then sell) - that's a market view then.

It also tells you something about how the market views the reality of the Metro Bank rescue. At 48c for the old T2, the new 10NC5 14% T2 implicitly trades at ~18.5% IRR (20.8% to the 5y call date), i.e. unsustainable levels for any further T2 or other bank capital raising (which noone assumes anyway to occur for Metro Bank - it was hard enough to find someone to pump in fresh capital at rescue levels, despite the 40% T2 haircut sweetener), and Metro won't need any further capital, it's do or die now. Good luck with selling that mortgage book without eating into the capital position, haven't heard an update ever since the rescue announcement ...

The share price is at its historic all-time low (except for the closing price on the panic Friday before the rescue weekend, and just barely; 40.7 today vs 37.5 then), on the identical number of issed share capital (i.e. the equity raise/dilution hasn't settled yet).

Good luck to everyone - would be great to see a turnaround but I remain sceptical, mainly because the same management remains in place.

[BondSquared]

If the 5.5s exchange at 60% and one can buy them around 48%(?) tempting to buy another clip.
But then if the wheels come off they could be more fully bailed-in.
Anyone tempted?

V8

I have thought about this, but not been able to push the button just yet. It might be academic though. I asked HL about prices last week and they said none were available in a size that would interest me. They did say if I wanted 2m or more they might be able to do something. A bit more than I had in mind!

don't let HL get away with this - there are at least 2 brokers streaming prices for up to 1mm, and several 100k tickets are shown on the MTF tickers for the past days/weeks. HL should try trading on MTFs (Tradeweb or Bloomberg), like AJ Bell, and if they're not connected then they should sort out their stuff and connect.

[hiriskpaul]

If the 5.5s exchange at 60% and one can buy them around 48%(?) tempting to buy another clip.
But then if the wheels come off they could be more fully bailed-in.
Anyone tempted?

V8

The 60% level is, bond pricing-wise, a numeraire. You can't exchange your old T2 at 60 cents and then sell the new 10NC5 at guaranteed par 100 and hence monetize those 12 cents between 48 and 60.

There is no arb here, it just means that the market implicitly prices the new 10NC5 T2 at 80 cents (rather than at 100 / par); 80% * 60c = 48c, with 60c being the new post-haircut principal equivalent (I assume you get bond with a par value of 100 but only 60% principal of your old T2 holding principal) and 48c being the market price of the old T2. Back of envelope calc, Ignoring accrued and settlement timing here.

Another way of looking at it is that the market haircut - not the contractual one - is 52% rather than 40%, as the market assumes an immediate 20c discount to par (=80c) for the replacement.

Now you may think that an implied market price of 80c for the new 10NC5 14% T2 is too cheap (then buy the old T2 now) or too expensive (then sell) - that's a market view then.

It also tells you something about how the market views the reality of the Metro Bank rescue. At 48c for the old T2, the new 10NC5 14% T2 implicitly trades at ~18.5% IRR (20.8% to the 5y call date), i.e. unsustainable levels for any further T2 or other bank capital raising (which noone assumes anyway to occur for Metro Bank - it was hard enough to find someone to pump in fresh capital at rescue levels, despite the 40% T2 haircut sweetener), and Metro won't need any further capital, it's do or die now. Good luck with selling that mortgage book without eating into the capital position, haven't heard an update ever since the rescue announcement ...

The share price is at its historic all-time low (except for the closing price on the panic Friday before the rescue weekend, and just barely; 40.7 today vs 37.5 then), on the identical number of issed share capital (i.e. the equity raise/dilution hasn't settled yet).

Good luck to everyone - would be great to see a turnaround but I remain sceptical, mainly because the same management remains in place.

It's the current management that have turned the bank round!

On the mortgage book, the CEO has already stated that he will not accept a haircut. If that was the only offer he would simply run off the book and do less mortgage business. The mortgage book should be attractive to a bank with an AIRB model. More attractive than the mortgage book is to Metro, where capital would be more profitably deployed in other areas.

[hiriskpaul]

I have thought about this, but not been able to push the button just yet. It might be academic though. I asked HL about prices last week and they said none were available in a size that would interest me. They did say if I wanted 2m or more they might be able to do something. A bit more than I had in mind!

don't let HL get away with this - there are at least 2 brokers streaming prices for up to 1mm, and several 100k tickets are shown on the MTF tickers for the past days/weeks. HL should try trading on MTFs (Tradeweb or Bloomberg), like AJ Bell, and if they're not connected then they should sort out their stuff and connect.

I suspect I got someone on the phone who didn't know what he was doing. That happens sometimes at HL. I didn't mind too much as it was only a half hearted enquiry anyway.

One thing that concerns me is that we still don't know how retail investors will be treated. Also, I have had no reply from the company secretary. Not totally unsurprising, but not something that inspires confidence either.

[BondSquared]

The 60% level is, bond pricing-wise, a numeraire. You can't exchange your old T2 at 60 cents and then sell the new 10NC5 at guaranteed par 100 and hence monetize those 12 cents between 48 and 60.

There is no arb here, it just means that the market implicitly prices the new 10NC5 T2 at 80 cents (rather than at 100 / par); 80% * 60c = 48c, with 60c being the new post-haircut principal equivalent (I assume you get bond with a par value of 100 but only 60% principal of your old T2 holding principal) and 48c being the market price of the old T2. Back of envelope calc, Ignoring accrued and settlement timing here.

Another way of looking at it is that the market haircut - not the contractual one - is 52% rather than 40%, as the market assumes an immediate 20c discount to par (=80c) for the replacement.

Now you may think that an implied market price of 80c for the new 10NC5 14% T2 is too cheap (then buy the old T2 now) or too expensive (then sell) - that's a market view then.

It also tells you something about how the market views the reality of the Metro Bank rescue. At 48c for the old T2, the new 10NC5 14% T2 implicitly trades at ~18.5% IRR (20.8% to the 5y call date), i.e. unsustainable levels for any further T2 or other bank capital raising (which noone assumes anyway to occur for Metro Bank - it was hard enough to find someone to pump in fresh capital at rescue levels, despite the 40% T2 haircut sweetener), and Metro won't need any further capital, it's do or die now. Good luck with selling that mortgage book without eating into the capital position, haven't heard an update ever since the rescue announcement ...

The share price is at its historic all-time low (except for the closing price on the panic Friday before the rescue weekend, and just barely; 40.7 today vs 37.5 then), on the identical number of issed share capital (i.e. the equity raise/dilution hasn't settled yet).

Good luck to everyone - would be great to see a turnaround but I remain sceptical, mainly because the same management remains in place.

It's the current management that have turned the bank round!

On the mortgage book, the CEO has already stated that he will not accept a haircut. If that was the only offer he would simply run off the book and do less mortgage business. The mortgage book should be attractive to a bank with an AIRB model. More attractive than the mortgage book is to Metro, where capital would be more profitably deployed in other areas.

We're not going to agree on this. The "turnaround" has led both Metro stock and T2 bond prices to all-time lows, plus a frantic weekend of PRA-led rescue attempts for good measure. If the turnaround had any credibility then it woudn't have ended like this (current management has been in place for a few years now and not just weeks or months). Their CVs - with the exception of the poor CRO who was appointed to the job less than a year ago - look distinctly underwhelming and help explain their haplessness with AIRB model approval. And yes, I did hear the CEO's comment in the analyst call on not selling the mortgage book below book value and rather running it off - that's when I lost any hope (a bank analyst (Barclays?) drilled down on that question and sounded somewhat exaspirated). Back on planet Earth, no bids at book value have been received, and if it was so easy to sell those fantastic mortgages at zero discount then one wonders why the management team hasn't started the sale process earlier - their capital resources (commons, T2s) have been trading distressed for a long time now; and it's not like they choose to run down the mortgages, they just can't sell them without destabilising/eating into their still very fragile CET1 (see share price), running down the book is not a choice but necessity, with no alternatives available. The PRA also seems to have very little confidence in the bank's competence (see AIRB non-approval, after they couldn't even calculate standardised risk weights correctly) and have sounded out all the UK high street banks and a few foreign ones to jump in as White Knights, unsuccessfully.

I wish you all the best with those T2s but I'm more negative about Metro Bank now than I was before the "rescue", and I'm certainly not alone - else the shares and T2s wouldn't trade at all-time lows (ignoring the single day before the frantic weekend), and distinctly below the pre-"rescue" levels, adding insult to injury.

[hiriskpaul]

It's the current management that have turned the bank round!

On the mortgage book, the CEO has already stated that he will not accept a haircut. If that was the only offer he would simply run off the book and do less mortgage business. The mortgage book should be attractive to a bank with an AIRB model. More attractive than the mortgage book is to Metro, where capital would be more profitably deployed in other areas.

We're not going to agree on this. The "turnaround" has led both Metro stock and T2 bond prices to all-time lows, plus a frantic weekend of PRA-led rescue attempts for good measure. If the turnaround had any credibility then it woudn't have ended like this (current management has been in place for a few years now and not just weeks or months). Their CVs - with the exception of the poor CRO who was appointed to the job less than a year ago - look distinctly underwhelming and help explain their haplessness with AIRB model approval. And yes, I did hear the CEO's comment in the analyst call on not selling the mortgage book below book value and rather running it off - that's when I lost any hope (a bank analyst (Barclays?) drilled down on that question and sounded somewhat exaspirated). Back on planet Earth, no bids at book value have been received, and if it was so easy to sell those fantastic mortgages at zero discount then one wonders why the management team hasn't started the sale process earlier - their capital resources (commons, T2s) have been trading distressed for a long time now; and it's not like they choose to run down the mortgages, they just can't sell them without destabilising/eating into their still very fragile CET1 (see share price), running down the book is not a choice but necessity, with no alternatives available. The PRA also seems to have very little confidence in the bank's competence (see AIRB non-approval, after they couldn't even calculate standardised risk weights correctly) and have sounded out all the UK high street banks and a few foreign ones to jump in as White Knights, unsuccessfully.

I wish you all the best with those T2s but I'm more negative about Metro Bank now than I was before the "rescue", and I'm certainly not alone - else the shares and T2s wouldn't trade at all-time lows (ignoring the single day before the frantic weekend), and distinctly below the pre-"rescue" levels, adding insult to injury.

It's not hard to reduce a mortgage book. They just have to increase the SVR slightly and not offer competitive follow on fixed rates.

[BondSquared]

don't let HL get away with this - there are at least 2 brokers streaming prices for up to 1mm, and several 100k tickets are shown on the MTF tickers for the past days/weeks. HL should try trading on MTFs (Tradeweb or Bloomberg), like AJ Bell, and if they're not connected then they should sort out their stuff and connect.

I suspect I got someone on the phone who didn't know what he was doing. That happens sometimes at HL. I didn't mind too much as it was only a half hearted enquiry anyway.

One thing that concerns me is that we still don't know how retail investors will be treated. Also, I have had no reply from the company secretary. Not totally unsurprising, but not something that inspires confidence either.

I see very little chance of a smaller denomination on the new T2 10NC5 - they are bound by investor regulation, which has only tightened since the current T2 was issued. Regulators hate retail dabbling in bank capital instruments. Which leads me to ask - does anyone have experience buying Cocos with a UK-based broker, while registered as a professional investor? AJ Bell refused, but maybe I was talking to the wrong person there.

[BondSquared]

We're not going to agree on this. The "turnaround" has led both Metro stock and T2 bond prices to all-time lows, plus a frantic weekend of PRA-led rescue attempts for good measure. If the turnaround had any credibility then it woudn't have ended like this (current management has been in place for a few years now and not just weeks or months). Their CVs - with the exception of the poor CRO who was appointed to the job less than a year ago - look distinctly underwhelming and help explain their haplessness with AIRB model approval. And yes, I did hear the CEO's comment in the analyst call on not selling the mortgage book below book value and rather running it off - that's when I lost any hope (a bank analyst (Barclays?) drilled down on that question and sounded somewhat exaspirated). Back on planet Earth, no bids at book value have been received, and if it was so easy to sell those fantastic mortgages at zero discount then one wonders why the management team hasn't started the sale process earlier - their capital resources (commons, T2s) have been trading distressed for a long time now; and it's not like they choose to run down the mortgages, they just can't sell them without destabilising/eating into their still very fragile CET1 (see share price), running down the book is not a choice but necessity, with no alternatives available. The PRA also seems to have very little confidence in the bank's competence (see AIRB non-approval, after they couldn't even calculate standardised risk weights correctly) and have sounded out all the UK high street banks and a few foreign ones to jump in as White Knights, unsuccessfully.

I wish you all the best with those T2s but I'm more negative about Metro Bank now than I was before the "rescue", and I'm certainly not alone - else the shares and T2s wouldn't trade at all-time lows (ignoring the single day before the frantic weekend), and distinctly below the pre-"rescue" levels, adding insult to injury.

It's not hard to reduce a mortgage book. They just have to increase the SVR slightly and not offer competitive follow on fixed rates.

yup, that's what you do when you have all the time in the world, as a solid well-run bank with no reg cap pressure and no negative publicity. I just don't see that with Metro but will be delighted to be surprised otherwise. We'll soon know more, as Metro Bank has set themselves a Q4/23 target for completion, so we'll know by end of December how successful that was.

I just reread their statement from a month ago:

The Asset Sale is expected to be CET1 ratio and MREL ratio accretive, reducing RWAs
by c.£1bn (assuming a c.£3bn Asset Sale) and allowing Metro Bank to reinvest proceeds into cash at a
higher yield, subject to pricing.
https://www.metrobankonline.co.uk/globa ... 082023.pdf

I was expecting the sentence to end in "and will bring world peace and an end to climate change"

[hiriskpaul]

Prospectus is out, all very much as expected.

There is a section saying the bonds must not be offered to scumbag retail investors. In line with that policy, the denomination is the usual retail unfriendly 100k + 1k increments. That means mine can be swapped as I hold a sufficient number, but I wonder what happens to accounts where the resultant position would be less than 100k? Or positions that would need a fractional amount of 1k after being swapped? eg if someone currently held 171k,the position after the haircut would be 102.6k. There might be something in the prospectus about this,but I have not found it yet.

My email to IR has clearly been completely ignored.