Hedge funds have ramped up bets against Metro Bank ahead of tomorrow’s crunch shareholder vote on a £925 million rescue plan.
Metro has warned it may be deemed unviable by the Bank of England and put into a process for managing failed banks called resolution if the funding package is rejected.
The controversial plan would hand control of the high street lender to Jaime Gilinski, a Colombian billionaire who is pumping £102 million into the lender and raising his stake to 52.9 per cent.
Short-sellers stand to make a killing if the deal is rejected and the bank fails. They use borrowed money to buy shares in the hope they fall in value.
Some 6.4 per cent of Metro’s shares are on loan to hedge funds led by Caius and Kite Lake Capital, making the bank the most ‘shorted’ stock on the London market after online retailer Asos. Shares crashed last month after it first emerged the bank was scrambling to raise hundreds of millions of pounds to shore up its balance sheet.
Flamboyant: Founder Vernon Hill with his pet Yorkshire Terrier Sir Duffield
At 40p, Metro is valued at less than £70 million – a far cry from the 4000p the shares fetched just five years ago. Metro has 2.8 million customers, 76 branches and £15.6 billion in deposits, split between retail and small business customers. These are guaranteed up to £85,000 per account, which covers most personal customers, but only 57 per cent of commercial deposits. The bank saw an increase in outflow rates before the rescue deal was unveiled, but daily flows have returned to more normal ranges, a spokesman said.
Bondholders have already given their backing to the rescue deal, which involved some of them losing 40 per cent of their investment.
But Metro must still secure majority support from its equity investors as well.
Metro was laid low by an accounting blunder four years ago which led to the departure of flamboyant founder Vernon Hill.
Like other large lenders, it has agreed a ‘living will’ with the Bank of England that would ensure taxpayers are not left to pick up the tab if it collapsed.