It hasn’t been a great time for the Metro Bank (LSE: MTRO) share price. The stock is down over 20% since the beginning of 2021 and has fallen over 7% during the past year.
So is this a buying opportunity? I don’t think it is for me. I reckon the Metro Bank share price could be set for a further decline. Here are my reasons.
Turnaround
Daniel Frumkin was appointed as the bank’s new CEO in February 2020. After completing a review of the business, he set a plan to turnaround the bank and return it to sustainable profitability.
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This consisted of five strategic priorities that he believed would deliver shareholder value. In short, these include: cost and revenue initiatives, improving infrastructure, balance sheet optimisation, as well as clear internal and external communications.
Well, it’s one thing saying something and it’s another actually delivering the goods. Not only did Frumkin have the pressure of carrying through his goals for the bank, but a few weeks after he had to contend with the challenges of Covid-19. So I think it’s safe to say that he had his hands full.
The strategic drivers and the transformation plan are still intact. But let’s just say that the pandemic got in the way and the bank has had to adapt just like any other business.
Loss-making
As I said, the Metro Bank share price has fallen since the start of the year. But I’m not really surprised as it has been unprofitable for some time. It made a loss of £311m in 2020. And in 2019 the bank also made a loss of £131m.
In fact, the loss last year was lessened by the sale of its £3.1bn residential mortgage portfolio to NatWest. This disposal was in line with its strategic priorities as it’s looking to move towards higher yielding assets.
But let me be frank, two years of losses doesn’t help boost investor sentiment. And this has placed pressure on the shares. Even though it has a turnaround plan, the firm continues to face headwinds and has to endure the costs that come with transforming the business.
I’m fully aware that this change isn’t going to happen overnight. And it could overhang the stock. I reckon the Metro Bank share price may deteriorate even further.
The plan
But it’s not all doom and gloom. As I mentioned, there’s a plan and it’s sticking to its five strategic priorities. The bank is focusing on higher yielding assets and differentiating itself from its competitors.
It shifting its lending towards specialist mortgages as well as small business and retail unsecured loans. Metro Bank also acquired RateSetter as part of its goal to grow its unsecured lending business. This offers the bank a scalable solution to reach new customers as well as improve its brand awareness.
My view
I don’t think the challenges are over just yet but the company is taking the right steps. It still has a tough road ahead and I think this could place pressure on the Metro Bank share price going forward.
In my opinion, it really hasn’t demonstrated that the turnaround plan is working yet. Until I see this evidence, I’m steering clear of the shares.
