By Iain Withers and Anousha Sakoui
LONDON (Reuters) -Embattled British bank Metro announced a 325 million pound ($396.5 million) capital raise and 600 million pound debt refinancing on Sunday, after a weekend of urgent talks to bolster its balance sheet after a volatile week of trading.
The deal would hand majority shareholder control to its biggest investor - Colombian billionaire Jaime Gilinski - and would entail a hit for bondholders, who would then switch into higher interest-paying bonds.
Metro Bank had sought to shore up its finances after a string of setbacks in recent years, including accounting errors, leadership departures and delayed regulatory approval for key capital reliefs.
The lender - which launched in 2010 to challenge the dominance of Britain's big banks - said the capital raise comprised 150 million pounds of new equity and a 175 million pound issuance of bail-in debt known as "MREL".
The equity raise was led by Metro's largest shareholder, Gilinski-owned Spaldy Investments, which contributed 102 million pounds. Spaldy will become the controlling shareholder once the transaction completes, Metro said, with a 53% stake.
"The opportunity to become the bank's major shareholder is driven by my belief in the need for physical and digital banking underpinned by a focus on exceptional customer service," Gilinski said in a statement.
The deal also involves a restructuring of its debts that will extend the maturity of its borrowings, with holders of a 250 million pound Metro Bank tier 2 bond due in June 2028 taking a 40% haircut.
Holders of that bond will be swapped into a new bond paying a 14% interest rate, while holders of a separate bail-in MREL bond will switch out to a new one paying a 12% coupon.
The fundraisings are due to complete in the fourth quarter, subject to shareholder and bondholder agreement.
The bank also said it was in discussions regarding the sale of up to 3 billion pounds of residential mortgages.
The Bank of England's Prudential Regulation Authority said in a statement: "The Prudential Regulation Authority welcomes the steps taken by Metro Bank to strengthen its capital position."
Several major banks were approached by the regulator this week to consider making an offer for Metro, including HSBC and Lloyds.
Reuters reported on Friday that Metro Bank was set to discuss funding options with its shareholders over the weekend, after a proposal from bondholders earlier in the week was seen as handing over too much control.
($1 = 0.8196 pounds)
(Reporting by Iain Withers, Anousha Sakoui in London, additional reporting by Huw Jones and Pablo Mayo Cerquerio in Londo and Lavanya Ahire in Bengaluru; Editing by Lisa Shumaker)