Posted on 10/05/2023 8:11:28 AM PDT by Diana in Wisconsin
London (CNN) — Shares in UK lender Metro Bank sank as much as 31% Thursday following a report that it was urgently seeking to raise funds to shore up its finances.
The Financial Times reported that the bank was in talks with investors to raise £250 million ($303 million) in equity and £350 million ($424 million) in debt, citing people with knowledge of the plan.
Metro Bank opened in 2010 as the first challenger to Britain’s major main street banks — including Lloyds (LYG), Barclays (BCS) and HSBC (HSBC) — in more than 100 years. It declined to comment on the report.
The bank said in a statement Thursday that it “continues to meet its minimum regulatory capital requirements” and was considering a range of options to raise more capital, including issuing shares and corporate bonds, refinancing its debt or selling assets.
“No decision has been made on whether to proceed with any of these options,” it added.
Metro Bank’s assurances did little to support its share price, which was trading 25% lower by early afternoon in London.
The bank’s shares are down almost 63% since mid-September when UK regulators refused its request to change the way it calculates capital requirements on its residential mortgages book.
The change would have allowed the bank to hold less capital, improving its profitability.
On Wednesday, ratings agency Fitch said it had put the lender on watch for a downgrade to its credit rating, citing risks to its capital position, funding and business model.
“We expect the group’s earnings prospects to come under pressure in the short term due to rising funding costs, resulting from higher competition for deposits and given likely more expensive access to wholesale funding. In addition, capitalization is tight,” Fitch said in a statement.
(Excerpt) Read more at channel3000.com ...
Investors in banks are understandably jittery: In March, two regional lenders in the United States collapsed, sending shockwaves through the global financial system, and prompting regulators to take the extraordinary measure of guaranteeing all customers’ deposits in those banks.
If the price of its bank shares drop to bargain levels won’t that help them sell a bunch and raise money on the sheer volume of transactions?
It's not because people are fleeing the US dollar and don't want it - quite the opposite in fact.
It's for two primary reasons:
1) Foreign nations can't get enough Eurodollars (US dollars used in foreign trade) for international settlement. These nations are diving into major deflation. Their money is cratering against the dollar. Places like Japan (2nd largest holder of our Treasuries) are having to sell US treasuries to get dollars - and are also using some of those dollars to buy yen...seeking to prop it up.
2) Banks don't lend your deposits. They use them in day to day operations for intrabank transfers around new loans, etc. They either sit in reserves at the Fed, or are put into longer-dated US treasuries. Banks have to meet certain capital requirements. When depositors stop depositing - or worse - begin pulling the deposits out then the capital takes a major hit. Banks then need to begin selling some of the treasuries to prop up reserves and capital requirements.
Both of these conditions require the selling of existing treasuries - not because the seller wanted to - but because they had to.
Massive selling of treasuries leads to more supply on the market and higher yields.
In conclusion - look at the yield increase as a flashing sign of major economic deflation - not as a sign of the dollar's weakness. It's growing stronger by the day - which it always does in deflationary times...
No - because they operate on capital requirements - and those were calculated on the previous share price.
They used to be valued at over $3 billion US dollars. Now under $100 million.
They're toast.
They may lose money per transaction, but they make it up on volume.
I don’t think the issue is people pulling out deposits - banks are offering CD in the 4-5% range, and people are snapping them up. I think the problem is the negative interest rate spread for their mortages and other fixed debt.
Maybe the smaller players, not the larger ones.
I yanked my deposits and have them in 4-wk US Treasuries at almost 5.5% yield.
Safest and most pristine investment one can make - why let a risky bank have them?
The Treasury Direct website makes it easy - or one can go through their own brokerage account.
Here's proof: Bank Deposits Fell for Fifth Straight Quarter in Q2
This is going to happen to banks who “mis played” their treasuries.
If they loaded up on interest sensitive assets those assets have fallen in book value as the rates have gone up. For example if you bought a bond for $100 when rates were 2%, that bond price would have dropped significantly when trying to meet the current return rates at 5%.
Many organizations have to “mark to market.” This means that the assets must be valued at their market price, not their purchase price. So, a bank can be moving along just fine…but all of a sudden their book value is down significantly. Then they have to adjust their reserves to meet the required reserve rate.
This starts to literally suck cash/liquidity out of the system. This becomes an issue when they can no longer “attract” liquidity and they must start selling assets at a loss.
It is important to note that banks live on Net Interest Margin. And that tends to be measured in 10ths of a percent. Every time interest rates edge up…the NIM gets hit.
If the bank is slow to react…or cannot afford to attract liquidity, they are screwed.
In this environment you want your bank to be the first bank to fail because by the time the BIG banks fail there wont be any sound money to bail them out.
It would be helpful to understand if this is just one more old fashioned run on the bank, or if something is seriously wrong.
The aggressively publicized bank panics in the USA were complete nonsense from my perspective.
When half your depositors show up on the same day and withdraw their money, every bank in the USA will collapse.
From memory, the USA bank runs happened about six months ago, and there is still zero evidence that anything at all was wrong with their loan portfolios or their cash reserves.
Well, that link doesn’t go anywhere.
Let's retry that...
Depositors were chasing higher rates - which banks were slow to give. Their fault.
This caused a big problem with their capital requirements, causing them to liquidate some of their bond holdings (or run to the Fed to use the new facility they just opened).
Selling bonds, along with other nations selling US Treasuries to prop up their own currencies and find enough Eurodollars to execute their trades, caused bond yields to skyrocket.
It's going to get a lot worse before it gets better. I'm all for it - banks are criminal.
They don't lend deposits - they create money when promissory notes are executed. As an entry...
Yet a home or auto owner has trouble with their payments and the bank steals the underlying asset - even though the original money was simply added to their balance sheet.
Many people are under a very wrong assumption that banks lend deposits - or somehow we're under fractional reserve. That's nonsense.
The Bank of England actually put out a good paper a number of years ago, regarding the process of money creation.
Relax...Mr. Potter will buy your shares at 50 cents on the dollar.
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