The challenger bank failed to access the public bond market this week. So how is it going to replace the £3.8bn of cheap liquidity loans it has from the Bank of England?
Metro was an avid user of the Bank of England’s Term Funding Scheme until the programme was closed in February 2018. It borrowed nearly £4bn of four year debt, at interest rates close to 0.25%.
Considering that Metro this week failed even to raise £200m of four year non-preferred senior bonds, despite offering to pay 7.5%, it is going to have its work cut out refinancing its TFS loans in the coming years.
While it could turn to secured debt and depositors, it will likely have to swallow a massive increase in funding costs. Further twists and turns in the Brexit saga would not be helpful either.
The last thing the Bank of England wants to not want to create a new version of the TFS just to wean banks off the old one. But unless the outlook improves, it may well have to.
But long before that, Metro Bank has to meet a deadline set by the Bank of January 1 to raise bail-inable Minimum Requirements for Own Funds and Eligible Liabilities (MREL) debt.
This week's deal was meant to fill that requirement. After its failure, Metro may have to beg the Bank for a reprieve.
Finding a justification for this would be embarrassing for both Metro and the Bank of England, considering that the MREL market has been wide open for other issuers, and that Metro is under review by regulators for its accounting problems, which could ultimately lead to it needing more capital.
The Bank will need all its deftness to weave its way through that chicane.