Is now finally the time to buy Metro Bank shares?

As Metro Bank plc (LON: MTRO) hits record lows, is now finally the time to invest in the challenger bank?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Shares in Metro Bank (LSE: MTRO) once again hit record lows on Thursday, hurt primarily by the news that its customers have withdrawn some £2bn of deposits since the start of the year. Meanwhile, the rest of its Q2 results gave no encouragement to investors. And Wednesday night’s announcement that co-founder Vernon Hill will be replaced as Chairman, rather than encouraging the market, in fact seems to be something of a botched job.

No savings, no loans

In these times of complex international banking, it is easy to forget that first and foremost, the business of a commercial bank is to use the deposits of its savings customers, for which it pays a small interest fee, to lend to its borrowing customers, for which it charges a much high interest rate. News that Metro’s savers are withdrawing their deposits en masse, is not good.

I was covering the markets when a run on Northern Rock — a bank with much broader standing on the high street and arguably a better financial position — brought about its demise. These latest withdrawals from Metro may not yet constitute a run, but if they continue, the end result will no doubt be the same.

The company did say that this large withdrawal figure comes about mainly due to a small number of commercial clients pulling their cash, though I find that only slightly more encouraging than many smaller customers withdrawing their funds. Metro also said that the last eight weeks has seen net deposits return to growth – again better than nothing, but not by much.

Change at the top…kind of

The other bit of major news for Metro was that it would be replacing its Chairman Vernon Hill, as I said. Though normally a positive move for a struggling company whose management has been called into question, this time however, Metro seems to have botched even that.

Rather than giving a clear-cut sign to the market of decisive new leadership, the bank instead gave no real timetable under which it will be replacing Mr Hill. What’s worse, he himself said he would want his replacement to spend some time as a director before he was willing to hand over the reins, suggesting the process will be protracted and unclear – just what a struggling company needs.

As if he thought it would help, Mr Hill said: “I’m not leaving. I would never leave at a low point. Think of me as a founder that plays a different role from a non-executive director,” The statement worried rather than encouraged the market, as investors would perhaps rather he didn’t take the ‘back seat driver’ role that he seems determined to do.

Bargain or sinking ship?

With its share price now below the 400p mark, it’s only natural that potential bargain hunters are once again thinking about buying. While its efforts to sell some of its loan book may be a step in the right direction, I see the risks surrounding the bank as just too great for me to invest in it. At this point, I think the chances of the company going bust probably outweigh the chances that it will ever return to previous highs.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Karl has no positions in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

After it crashed 25%, should I buy this former stock market darling in my Stocks and Shares ISA?

Harvey Jones has a big hole in his Stocks and Shares ISA that he is keen to fill. Should he…

Read more »

happy senior couple using a laptop in their living room to look at their financial budgets
Investing Articles

How’s the dividend forecast looking for Legal & General shares in 2025 and beyond?

As a shareholder, I like to keep track of the potential dividend returns I could make from my Legal &…

Read more »

artificial intelligence investing algorithms
Investing Articles

Could buying this stock with a $7bn market cap be like investing in Nvidia in 2010?

Where might the next Nvidia-type stock be lurking in today's market? Our writer takes a look at one candidate with…

Read more »

Investing Articles

Is GSK a bargain now the share price is near 1,333p?

Biopharma company GSK looks like a decent stock to consider for the long term, so is today's lower share price…

Read more »

Snowing on Jubilee Gardens in London at dusk
Investing Articles

Could December be a great month to buy UK shares?

Christopher Ruane sees some possible reasons to look for shares to buy in December -- but he'll be using the…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

Sticking to FTSE shares, I’d still aim for a £1,000 monthly passive income like this!

By investing in blue-chip FTSE shares with proven business models, our writer hopes he can build sizeable passive income streams…

Read more »

Growth Shares

BT shares? I think there are much better UK stocks for the long term

Over the long term, many UK stocks have performed much better than BT. Here’s a look at two companies that…

Read more »

British Pennies on a Pound Note
Investing Articles

After a 540% rise, could this penny share keep going?

This penny share has seen mixed fortunes in recent years. Our writer looks ahead to some potentially exciting developments in…

Read more »