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Is now finally the time to buy Metro Bank shares?

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in Metro Bank  (LSE: MTRO) once again hit record lows on Thursday, hurt primarily by the news that its customers have withdrawn some £2bn of deposits since the start of the year.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.

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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.