29 Oct 2019 19:18
Are They the next Northern Rock?
Whilst the news flow is similar, that is largely due to media hype and there is fundamental differences between Northern Rock and Metro. Norther rock largely relied on volatile bond and commercial paper, whereas Metro Bank’s loan book is largely covered by its customer deposits. However, this status quo will only remain if deposits remain. The company really needs a top down review if it intends to make it, and not go cap in hand to the government by the end of the year.
Summary
In this day of defensive solid banking stocks investors need a lot more security. So, the question that really needs to be asked, is there really space in this modern day of banking for a company that has been opaque about its operations and management.
I’m afraid the outlook is bleak to say the least, The recent result on the bond issue does at least steady the ship so to speak and whilst the drop in share price can seem appealing to those with a strong enough risk appetite it is always important to remember that there are no points for bravery in the stock market. Current levels can look attractive for new investors but to deliver a decent return on equity, the bank will have to see significant increases to income from current forecasts. This will be a struggle given an increasingly competitive market, and strained banking backdrop. Equally the fear mongering in the press could also easily put off any new depositors. In the near term they need to get their house in order, and this has started to happen with Vernon Hill announcing his departure, but a lot will rest on whether financing can be fully raised by the end of the year. The positive noise coming from the recent bond issue is seen as a glimmer of hope but is it really enough to get them out of trouble? Investor appetite towards banks is muted at best and one that has so many issues lacks any real appeal.
From a trading point of view, it is not something I would currently look at, even if the chart and moves are appealing the event risk and announcement risk is simply to high long or short, not unless a fundamental change happened.
From a longer-term point of view the price may appeal to bargain hunters but the reality is they still have a lot to get sorted, there’s no dividend to attract the longer-term income investor and so should be viewed as a highly speculative growth stock at best.
Overall, I would avoid the stock until there is an actual reason to buy. And at this point whilst there have been a few minor positives these aren’t a strong enough reason to see them as a buy.
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