Metro Bank shares tumble on pulled bond sale

Shares in Metro Bank fell heavily on Tuesday after the under-pressure challenger lender pulled a £250m bond sale.

Despite offering a hefty 7.5% yield, it is understood the high street bank failed to attract enough investors. It was looking to raise between £200m and £250m to meet new EU regulations known as MREL, but had only received £175m of orders by Monday afternoon, according to the Financial Times.

In a statement, Metro thanked "the broad number of investors who have met with the company and shown interest in its potential inaugural MREL issuance".

"Given the current market conditions, Metro has decided to not proceed with a transaction at this time. Metro has a strong capital position and therefore the flexibility to raise MREL at the right time for the bank," it said.

Investors appeared less confident, however, and by 1030 BST on Tuesday, the FTSE 250 stock was trading 14% lower at 233.79p.

Metro launched in 2010 and promised to shake up the UK's staid high street banking sector with improved customer service and longer open hours.

But in January, it revealed a major loan book error, sending the shares tumbling from a high of 2,196p at the start of the year and prompting founder Vernon Hill to announce he would step down as chairman. The bank was also forced to issue new shares to strengthen the balance sheet.

The Financial Conduct Authority has launched an investigation into how the mistake happened, the scope of which has since been widened.

Russ Mould, investment director of AJ Bell, called the cancelled bond sale "another major blow" for the bank.

"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," he said. "It suggests that investors don’t trust the bank, or they believe the yield is simply not high enough to compensate for the risks of owning such a product.

"Metro Bank has lost all credibility with the market."

Neil Wilson, chief markets analyst at Markets.com, said: "It shows the kind of mire Metro is in after the accounting error and now expanding FCA investigation. It’s crazy to think it was offering 7.5% on these notes and still couldn’t get the demand. This is a worrying sign that the bank is not able to raise fresh debt or capital when the going gets tough."