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Metro Bank Secures Funding to Strengthen Financial Position

Metro Bank, an upstart British lender, said on Sunday that it has raised 325 million pounds, or $395 million, in new capital to help ease regulators’ worries about its financial health.

The deal, put together after days of negotiations, is meant to help stabilize what was one of the first of Britain’s so-called challenger banks, created to take on incumbents like HSBC and Barclays.

Founded in 2010 by an American banking veteran, Vernon Hill, Metro was the first new mainstream bank in Britain in over a century. The bank focused on building physical branches in prominent locations, offered Sunday hours, and grew to 2.8 million customers and £22 billion worth of assets.

But it has struggled after it disclosed an accounting error in 2019 in which it underestimated how much capital it needed to back its mortgages. That led to regulatory fines and executive departures, troubles that it has never fully recovered from.

Its headaches compounded last month after banking regulators rejected its yearslong effort to use its own internal calculations to determine the necessary capital reserves for its mortgages. Shares in the bank have fallen as much as 60 percent since then.

Under the terms of the weekend deal, Metro will raise £150 million from existing shareholders and £175 million from some of its bondholders.

Most of the equity capital will come from the firm’s largest shareholder, Jaime Gilinski Bacal, a Colombian financier, who will end up with a 53 percent stake in the bank.

It also includes the refinancing of £600 million worth of debt, in which the bank will write down the value of some of its bonds by about 40 percent and extend their maturities. And Metro said it was exploring the sale of £3 billion worth of mortgages, which would further free up capital and bolster its earnings.

But in a call with analysts, Metro’s chief executive, Daniel Frumkin, argued that his bank’s core strategy — including having physical branches, as opposed to focusing on digital lending as competitors like the British unit of JPMorgan Chase and Monzo do — was sound.

“There is nothing wrong with the Metro business model,” he said. “It continues to deliver for all stakeholders.”

The Prudential Regulation Authority, one of Britain’s top banking overseers, said it “welcomes” the move by Metro.

Shares in the bank were up 15 percent on Monday, though they have fallen about two-thirds from their 52-week high.

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