The Motley Fool

Do I think 2020 will be a better year for the Metro Bank share price?

Image source: Getty Images

While it might be hard to imagine how 2020 could be worse for Metro Bank (LSE: MTRO) shares and investors than 2019 was, no matter where I look, there is just nothing to indicate 2020 will be any better. Even neutral may end up being optimistic.

Bad news, bad year

Let’s face it, 2019 was disastrous for Metro Bank. Once a prime example of so-called challenger banks, that had many investors rushing to buy shares as these small, scrappy newcomers were set to usurp their larger peers, Metro today is almost beginning to feel like a failed experiment.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Indeed the major issue that sparked most of Metro’s troubles this year would have arguably not been such a problem for a major lender. When the bank said at the start of the year that it had misreported the risk weighting of a large number of its loans, it hit a lot harder than it would for a bigger firm.

Metro’s share price dropped about 80% on the news its senior management came under investigation from the Financial Conduct Authority. Customers and investors alike started to run from the bank, which soon became one of the most shorted stocks in the UK.

More recently the chair and CEO announced their resignations, while a failed bond issuance forced Metro to offer a higher rate of interest in order to pass the debt security a week later. This is a commitment that will now weigh on the bank’s future.

Lack of confidence, lack of money

For me, lack of confidence and lack of money are the two things potential investors need to consider with Metro Bank going into 2020. Perhaps most importantly, the lack of confidence that its customers and investors have in the bank is dangerous. Even those buying corporate bonds are seemingly risk-averse when it comes to Metro.

It is true that short selling in its shares has decreased over the past few months, but I suspect this has more to do with profit-taking on the stock’s large decline rather than increased investor positivity. Regaining the confidence of its customers is even more important.

A commercial bank’s primary business has always been taking the money it has from deposits, for which it pays a small interest rate, and lending it to individuals and business for a higher interest rate. If the bank does not have enough cash deposits, it simply won’t be able to undertake its usual business. This lack of money soon becomes a cycle that could lead to Metro’s downfall.

These issues are made even worse by the number of regulations and capital requirements that the post-credit crunch world requires of lenders, and to put it simply, Metro may have a struggle to hold on while and if deposits return.

On the first day of trading in 2019, Metro Bank shares closed at about £17. As I write this, they trade at just above the £2 mark. A sharp decline this may be, but for me there is just nothing to indicate that Metro will be having a better year in 2020.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

Karl 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.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.