By Mark Kleinman, City Editor
Metro Bank is to tap shareholders for nearly £300m in a larger-than-expected fundraising that will see the high street lender delaying a flotation until 2016.
Sky News has learnt that Metro Bank told its existing investors on Friday that it plans to raise £250m with the option of a top-up offer to increase that sum to £287.5m, more than it has received so far in its brief existence.
The new capital will be used to fuel the further growth of the first new British high street bank in more than a century, as it accelerates the opening of new branches and its expansion into London's broader commuter belt.
According to sources familiar with a prospectus issued as part of the fundraising process, Metro Bank's board wants to grow its branch network from 21 stores today to 150 by 2020, and is targeting 280,000 customers by the end of the year, up from 238,000 on September 30.
The bank has already been a beneficiary of a new seven-day current account-switching regime launched by the Government earlier this autumn as ministers attempt to kickstart a more competitive retail banking market.
Sky News revealed earlier this week that Metro Bank had decided to shun an immediate stock market listing in favour of a private fundraising, with existing shareholders able to subscribe to new stock commensurate with their existing holdings.
The much larger-than-expected scale of the new share offer, which closes on December 6, underlines the pace at which Metro Bank's board wants to grow its balance sheet but may stoke fears about escalating losses at the company.
Bank of America Merrill Lynch and Royal Bank of Canada have been appointed to identify buyers for any new shares not acquired by current Metro Bank investors.
Among the lender's existing shareholders are the billionaire Reuben brothers and Steven Cohen, the head of the US hedge fund SAC Capital, which was this week the subject of the biggest-ever insider trading settlement in the US.
A recent circular to shareholders outlined the escalating losses at Metro Bank, which lost £14.3m before tax in the three months to September and £38.6m in the year-to-date. That took the lender's total losses since being set up to nearly £140m.
However, Vernon Hill, chairman, and Craig Donaldson, chief executive, told shareholders that the second quarter of 2013 "will therefore have marked the peak quarterly loss and that quarterly losses will now fall until the bank achieves profitability".
The losses underline the costs associated with breaking into the UK's retail banking sector at a time when Government ministers are attempting to foment new competition through a string of new policy measures, including reducing capital and liquidity requirements for new entrants
In the prospectus published on Friday, Metro Bank said that it would have "increasing capital needs" and reminded shareholders that its longer term objective was to "seek an IPO on the main market of the London Stock Exchange as early as possible to enable Metro Bank to seek significant additional capital to support future growth in new stores and balance sheet assets and also provide liquidity to Shareholders".
Metro Bank's first branch opened in Central London in July 2010, and it now has 21 open, with aggressive expansion plans set out over the next five years.
Among the innovations it has introduced to the UK are dog-friendly and drive-through branch facilities, reflecting Mr Hill's determination to revolutionise the British consumer banking experience.
Mr Hill enjoyed huge commercial success with the launch of similar banking ventures in the US before encountering difficulties with regulators.
The fundraising prospectus includes further insight into Metro Bank's structure and operations, including an ownership ceiling of 9.9% contained in its articles of association.
In a lengthy list of risk factors, the company warned of the potential impact of various reforms to banking regulation and said it could be adversely affected by property market volatility.
"Fluctuations in the London residential and commercial property market, in particular, could expose Metro Bank to a heightened level of risk of customer default or depreciation of the value of property securing mortgages," it said.
It also highlighted a hitherto little-known risk relating to the use of its name, according to one insider who had seen the prospectus.
"Although the Company has acquired the trade mark "Metrobank" in the UK... There is a risk that Metro Bank's trade mark registration for the word "Metrobank" and the wider use of the "Metro Bank" name might be challenged by the owner of another similar trade mark. In the event that such a challenge was to be successful it may result in Metro Bank having to re-brand under a new name at considerable cost and disruption to the business."
A Metro Bank spokeswoman was unavailable for comment on Friday.
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