Why the Metro Bank share price fell 25% in September

Share price crashes are everyday news these days, but why has the Metro Bank share price fallen 25% in a month?

| 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.

A 25% share price fall over the course of a single month might be a bit of a shock for some stocks, but when it happens to the troubled Metro Bank (LSE: MTRO) it’s perhaps less of a surprise.

Metro Bank, once seen as a high-flying challenger bank ready to make big inroads into a sector left in turmoil after the financial crisis, had, by the end of September, seen its shares lose a whopping 95% of their value since the heady days of March 2018. And some of us think shareholders are lucky to have held on to even that much.

A share price fall of this magnitude really only happens after a series of disasters, and that’s exactly what Metro Bank has managed to pull off.

Catastrophic error

It all started when the bank discovered a serious accounting error. It had, it seemed, incorrectly assessed some of its loans and mortgages as less risky than they really were, meaning its true figure for risk-weighted assets was almost £1bn higher than previously thought.

That led to a cash call for £350m to shore up its balance sheet. But worse than that in my view, it badly hit confidence. This was really not the kind of blunder that a bank should ever make.

On top of that, there’s been a run on deposits at the bank, with savers having withdrawn more than £2bn since the start of the year. That leaves the bank with a loan book significantly in excess of its deposits, which doesn’t make things look any better.

As part of its attempt to get itself back on track and reassure investors, Metro announced that founder Vernon Hill was to step down as chair.

Failed bond issue

More recently, Metro has turned back to the markets to seek a cash injection of £200m through a bond issue, to pay for compliance with new EU regulations. But that’s fallen flat too. Despite a very attractive 7.5% interest rate, the markets weren’t interested and Metro just couldn’t find enough takers.

On 24 September, the bank told us it’s pulled the issue, and that news was behind the bulk of the month’s share price fall. For many investors, this sea of troubles has led to questioning Metro’s fundamental competence.

The questions now are whether Metro shares have fallen as far as they’re going to, and should we be buying the shares?

As it happens, though Metro shares fell further on 1 October, on the day I’m writing these words they’ve managed a bit of a rebound with a 10% rise. It comes after news that chair Vernon Hill is quitting sooner than originally intended, and will be gone by 31 December.

Goodbye chair

The company told us “Mr Hill believes that the bank has now reached a size and scale where it is appropriate to appoint an independent chairperson.” Maybe he means before it gets any smaller.

Even though analysts are expecting earnings per share to crash this year, Metro is forecast to carry on in profit with EPS recovering in 2020. But the shares are heavily shorted, and the bank is seemingly unable to raise the funding it needs. I’m keeping well away.

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.

Alan Oscroft has no position 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

Could the Rolls-Royce share price end 2024 above £5?

As the Rolls-Royce share price continues its remarkable run, our writer considers where it might be at the end of…

Read more »

Investing Articles

UK stocks are hitting all-time highs! Yet these 2 still look cheap to me

The FTSE 100's on a roll. But it's still possible to pick bargain UK stocks, provided we know where to…

Read more »

Satellite on planet background
Investing Articles

At just under £14, can BAE Systems’ share price still be a prime FTSE 100 bargain? 

Despite its bullish price run, BAE Systems’ share price still looks undervalued to me and appears set for strong growth.

Read more »

Photo of a man going through financial problems
Investing Articles

2 dividend shares I’d avoid like the plague in today’s stock market

The UK stock market is full of high-yield dividend shares that could equate to a steady stream of passive income.…

Read more »

Abstract bull climbing indicators on stock chart
Investing Articles

£17,000 in savings? Here’s how I’d aim to turn that into a £29,548 annual second income!

Generating a sizeable second income can be life-enhancing and can be done from relatively small investments in high-dividend-paying stocks.

Read more »

Investing Articles

With as little as £300 a month invested, this stock could net £16,000 a year in passive income

Putting a few hundred pounds each month into the stock market could eventually generate a five-figure annual passive income, this…

Read more »

Black woman using loudspeaker to be heard
Investing Articles

This dividend stock could pop next week!

This dividend stock happens to have one of the biggest dividend yields I've come across -- 10.7% -- but I'm…

Read more »

Investing Articles

Up 81%, can this FTSE 100 turnaround share keep surging?

This recovering retailer has been one of the FTSE's greatest performers over the past year. Royston Wild considers whether it…

Read more »