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Shares in beleaguered UK high street bank Metro Bank closed last week at 126, which marks an all time low for the challenger bank. There is obviously something very wrong with the bank, although the question remains, how much lower can it go?

Metro Bank has been plagued with a serious of issues that have continued to drive the share price down. This includes reporting errors, regulatory investigations and the troubled launch of a senior bond issue at an eye-watering 9.5% coupon.

McGirr controversy dogs Metro Bank share price

Metro Bank shares responded to further controversy last week as chief risk officer Grahame McGirr was asked to leave. McGirr, who is a veteran of high street banking roles having served at Barclays and the Co-operative Bank, had only been at Metro Bank for two weeks and had been expected to take his new role formally on 1 March.

Aileen Gillan, the current chief risk officer, has been asked to remain in the role until the bank can find a new replacement for McGirr. Metro Bank has been quite vague as to why exactly McGirr was asked to leave, raising more questions than it has answered.

Metro Bank has been something of a tainted idol for traders in 2019 as the company has struggled to keep hold of the sort of senior management talent that is needed if it is going to steer its was past the GBP 900 million accounting scandal that has dogged its footsteps at every turn.

Metro Bank disappointed investors last month when it announced it was going to have to seriously curtail its growth plans, booking a GBP 130 million pre-tax loss.

It looks as if Metro Bank is less profitable than it used to be: net interest income was reported to be down 7% thanks to weak net interest margin, which was also down to 1.51%. This compares with 1.81% in 2018.

Is someone planning to buy Metro Bank?

Despite all the bad news swirling around Metro Bank, some market players are taking an interest. Goldman Sachs, for example, is building a stake, having acquired 6.18% in voting rights attached to shares. Another 2.3% has come to it via other financial instruments. As we all know, Goldmans is something of a fan of retail banking at the moment, having launched its own retail brand, Marcus.

It has created some speculation among investors that Metro Bank might be the eventual target of an acquisition move by Goldmans or some other player in the market which would like to pick up a high street banking brand on the cheap. In our last note on Metro Bank we argued that there could be some interest in snapping up the bank if its regulatory problems can be resolved.

From the perspective of short traders, it is hard to say how much lower Metro Bank shares can go, but for CFD traders there could still be some further returns if more bad news is forthcoming. Certainly some hedge funds believe there is more time come: Voleon Capital Management raised its short stake on Metro Bank on Friday and Odey Asset Management retains a considerable short position, although it is starting to trim this.

Declarations of short positions against the Metro Bank share price are not at their all time high, which was back in May 2019, but they are at their highest level since the end of November. That said, we see some funds beginning to trim their shorts, which may be because they are wary of position building by potential acquirers.

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Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

Stuart Fieldhouse

Stuart Fieldhouse

Stuart Fieldhouse has spent 25 years in journalism and marketing, including as a wealth management editor for the Financial Times group, covering capital markets and international private banking, and as an investment banking correspondent for Euromoney in Hong Kong. He was the founder editor of The Hedge Fund Journal.

Stuart has worked at CMC Markets, supporting the re-launch of its global financial spread betting and CFD trading platforms. He is also the author of two books on trading, published by Financial Times Pearson. Based in The Armchair Trader’s London office, Stuart continues to advise fund managers, private banks, family offices and other financial institutions.

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