The Lemon Fool

I have been collecting cash for a while as I have not seen opportunities to my liking, but took the plunge today with Metro Bank 5.5% subordinated notes (ISIN XS1844097987). Prospectus is on the Investor Relations page here: https://www.metrobankonline.co.uk/investor-relations/. Under debt investors, "Tier 2 debt issuance: June 2018".

Following their accounting mishap a couple of years ago Metro successfully raised additional share capital. They also seem to have navigated Covid reasonably well. They are not out of the woods, but I don't see a huge risk in these Tier 2 notes not being repaid eventually. They are callable in June 2023, which would be great, but I think it unlikely. If not called, they reset to 5y gilts + 4.458% and mature in June 2028. The bond ticks all the boxes for a QCB, so there should be no CGT on disposal.

I picked up 2 lots today, across 2 different accounts, both for 64.45. That works out at a yield to maturity of 13.8%, assuming reset is to 5.5%. Yield to call is 35.8%. I was given a spread of 62.5/64.5 before the final price of 64.45, implying this is not hugely illiquid.

This is an institutional bond, with 100k nominal minimum and the prospectus has "Must not be sold to pleb retail investors" type of language in it. Despite that Hargreaves Lansdown allowed us to buy it without a problem, which is unusual for them.

Metro Bank have also issued a senior unsecured bond, ISIN XS2063492396, paying 9.5% and maturing in October 2025. The prospectus is on the same page as the Tier 2 bond under Euro Medium Term Note Programme. The bond should be available for around 91, for a yield to maturity of about 11.5%. It is callable in October 2024 and if not called will reset to 1y gilts + 9.22%. Again, an institutional issue, no plebs and 100k nominal minimum trade. I would be very interested in getting this in our SIPPs, but unfortunately HL don't have it on their platform. I have asked for it to be added and will post when they get back to me. Would not be surprised if, once they check the prospectus, they tell me we cannot have it, but we will see.

I realise this is not going to be everyone's cup of tea, but thought some might be interested.

This could be very good news for bonholders (ords up 25%):

https://www.londonstockexchange.com/new ... r/15200163

5.5% subs now trading around 95!
9.5% senior about 97.

You're a very lucky man!

JohnEdwards wrote:You're a very lucky man!

Indeed!

Sold a third of our position at 96.85. Happy to continue to hold the rest.

Now I need to work out where to put the proceeds...

JohnEdwards wrote:You're a very lucky man!

Absolutely! If I got my timing that perfect I might be accused of in cider dealing

Bonds down today and I decided to go back in again. Bought back for 76.45, YTM 10.5% (approx), YTC 23.5%.

A call is much more likely in the event of a takeover IMHO. It depends on the cost of replacement T2 debt at the time, but that could easily be lower than 5.5% if the bank is injected with more CET1 following a takeover. I would have thought anyone taking over the bank would want to grow the business, so injection of capital seems likely to me.

More bidders may appear of course. Co-op bank recently made an offer for TSB which was rebuffed.

These seem to be up and down like a whore's drawers.
Screen price 53 yesterday, 63 today.
Not sure whether they're a screaming buy or a head-for-the hills.
If a takeover makes a call more likely one would think they'd be well up.
It's all very odd.

V8

88V8 wrote:These seem to be up and down like a whore's drawers.
Screen price 53 yesterday, 63 today.
Not sure whether they're a screaming buy or a head-for-the hills.
If a takeover makes a call more likely one would think they'd be well up.
It's all very odd.

V8

That screen price I think comes from the LSE and it is nonsense. A friend with access to a Bloomberg terminal told me earlier today that the price was about 76 now, spread 74/78. The 9.5% senior is around 96.4/97.5. No news from HL on my request to list it yet, but they did say it could take a couple of weeks for a security that is complicated (it is!).

hiriskpaul wrote:Bonds down today and I decided to go back in again. Bought back for 76.45, YTM 10.5% (approx), YTC 23.5%.

A call is much more likely in the event of a takeover IMHO. It depends on the cost of replacement T2 debt at the time, but that could easily be lower than 5.5% if the bank is injected with more CET1 following a takeover. I would have thought anyone taking over the bank would want to grow the business, so injection of capital seems likely to me.

More bidders may appear of course. Co-op bank recently made an offer for TSB which was rebuffed.

Isn't TSB a Spanish bank now, like Santander?

They have a foothold in the UK, a country with a better transparency and trustworthy index than their own country.

Furthermore, the Brits have been trained by the tabloids over 40 years to do what they're told, and not to think too hard about the facts.

What's not to like?

Steve

stevensfo wrote:

hiriskpaul wrote:Bonds down today and I decided to go back in again. Bought back for 76.45, YTM 10.5% (approx), YTC 23.5%.

A call is much more likely in the event of a takeover IMHO. It depends on the cost of replacement T2 debt at the time, but that could easily be lower than 5.5% if the bank is injected with more CET1 following a takeover. I would have thought anyone taking over the bank would want to grow the business, so injection of capital seems likely to me.

More bidders may appear of course. Co-op bank recently made an offer for TSB which was rebuffed.

Isn't TSB a Spanish bank now, like Santander?

I think of the TSB as a UK bank. Assets and liabilities here, regulated here. Shares wholly owned by a Spanish company. Santander UK the same.

Bid discussion off for now:

https://www.londonstockexchange.com/new ... c/15216520

Given how quickly this came I suspect they were miles apart on price.

Current prices:
5.5% subs 65/67
9.5% senior 90/92

The PRA completes its investigation into the accounting cock-up and fines Metro £5m:

https://www.londonstockexchange.com/new ... n/15260993

The FCA still have their own investigation running, but most of those responsible have already fallen on their swords.

Bonds unmoved.


Edit: PRA's statement: https://www.bankofengland.co.uk/news/20 ... d-controls

HL got back to me some time ago about the 9.5% senior and told me they could not trade it.

"Unfortunately, Metro Bank PLC 9,5% 19/25 bond can’t be added as we’re unable to settle trades in the security through our market counterparties."

Bought some more of the 5.5% subs today in our SIPPs. Would have liked the senior, but HL are unable to trade it. Price was 69, for a ytm of 12.7%, or a ytc of about 34% in the event of a call in 2023. A call seems very unlikely at present. They would only do it if they were able to get a better funding rate than 5y gilt + 4.458%. That would require a significant improvement in the CET1 position and the only way that looks possible is through a rights issue or takeover. They are not going to build up significant reserves from trading over the next 18 months.

Fingers crossed for another bid!

Thanks for the heads up on that one hiriskpaul, I've just bought some, they look pretty cheap as long as they repay.

Hi Paul,

I own the metro 9.5% 2025 in my Sipp at AJBell.

Am looking at the ords as well as the 5.5% 2023 and am weighing up prospects of a call.

Appx 40% of shares are held by the following , which do not look like l/term holders to me :

Spaldy Investments, Ltd.
Corporation
Spruce House Investment Management LLC
Hedge Fund
Conifer Management LLC
Hedge Fund
Davis Selected Advisers, L.P.
Investment Advisor/Hedge Fund
683 Capital Management LLC
Hedge Fund
Abgrandkids, L.L.C.
Corporation
Ruane, Cunniff & Goldfarb L.P.
Investment Advisor
Toll (Bruce E)
Individual Investor

If a bid is to happen then my take is that this yr is as good as any..finance sector will do well on higher rates , still plenty of p/e money looking for a home.


Swan

Swanmore22 wrote:Hi Paul,

I own the metro 9.5% 2025 in my Sipp at AJBell.

Am looking at the ords as well as the 5.5% 2023 and am weighing up prospects of a call.

Appx 40% of shares are held by the following , which do not look like l/term holders to me :

Spaldy Investments, Ltd.
Corporation
Spruce House Investment Management LLC
Hedge Fund
Conifer Management LLC
Hedge Fund
Davis Selected Advisers, L.P.
Investment Advisor/Hedge Fund
683 Capital Management LLC
Hedge Fund
Abgrandkids, L.L.C.
Corporation
Ruane, Cunniff & Goldfarb L.P.
Investment Advisor
Toll (Bruce E)
Individual Investor

If a bid is to happen then my take is that this yr is as good as any..finance sector will do well on higher rates , still plenty of p/e money looking for a home.


Swan

Hi Swan,

Thanks for letting me know about AJBell. If they can hold them then I don't understand why Hargreaves Lansdown say they cannot. I think I might follow up with HL again. Bit late for me to invest now though as I have already bought the 5.5% and I am not sure I want to increase my exposure.

I think there is a good chance of a bid this year as well, maybe a 50/50 probability? Metro Bank shares provide a cheap way in to the UK banking market. The share price is up 25% from its December low as well, so maybe others are thinking the same thing.

Just checked with my AJBell account and I could not find the 9.5% listed - I searched using the ISIN XS2063492396. The 5.5% does seem available though. Maybe this is a bond that AJBell offered at one time but have now dropped for new purchases?

Hi Paul,

You need to phone into the dealing team for the 9.5% METRO BANK PLC 9.5%-FRN 08/10/2025 GBP 100,000 91.24 GBP
Tel 0345 54 32 600 to deal over the phone

Have bght 5.5% 2028s via HL today at 68.25..again over the phone..spread was ok 67-68.25.
I recall the 9.5% had a wider spread, 5 or 6 pips , when i dealt

To complete the Royal Flush i will take a smaller posn in equity,

Best Wishes,

Swan