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

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.

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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.

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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.