Shares in troubled Metro Bank (MTRO.L) have plunged to a record low after it scrapped a bond issue.
The bank’s shares were down 13.8% at around 10.20am in London, after it blamed “current market conditions” for not going ahead with a bond sale worth a reported £200m.
Russ Mould, investment director at AJ Bell, called it a “major blow” to the company, and said investors’ apparently lukewarm reaction was “quite remarkable” given the bonds were reported to be offering a 7.5% yield.
Metro Bank has faced a tumultuous year, with its value tumbling after errors involving a misclassified loan damaged market confidence and forced it to raise more cash.
The challenger bank had planned the bond issuance to raise enough funds to meet the Bank of England’s (BoE) rules, which require UK banks to have a minimum level of resources.
But the company, which launched in Britain in 2010, said in a statement: “Given the current market conditions Metro have elected to not proceed with a transaction at this time
“As a responsible issuer Metro shall consider future issuance mindful of all relevant stakeholders.”
Barclays analysts wrote in a note that the delay raised “immediate questions” over how or even if it could return to the market to meet the BoE’s rules as required by the end of the year.
They said Metro may be hoping market conditions return to normal, but warned of Brexit volatility raising the risks. If the bank offered even higher yields, it would present a “further substantial headwind to earnings.”
“Even if Metro eventually issues, we see little room for growth,” they added.
Mould of AJ Bell added: “The cancellation of a £200m bond sale is another major blow to Metro Bank, leaving management with red faces and the shares sinking even further.
“Failure to get enough support for a product that is yielding 7.5% is quite remarkable when you consider how investors are struggling to find generous levels of income in the current market.
“It suggests that investors don’t trust the bank or they believe the 7.5% yield is simply not high enough to compensate for the risks of owning such a product.”