Shares in Metro Bank (MTRO) made fresh all-time lows this week, hitting 462.75p after photos appeared of large numbers of customers queuing to withdraw their money amid social media chatter questioning the bank’s financial health.

The bank told customers their money was safe and insisted a planned £350m capital raising was still on.

Anyone invested in the stock will have been through a rocky ride as the shares have lost 86% of their value since July 2018, wiping £2.8bn off the company’s market value.

Metro’s key troubles began in January this year when an accounting error meant that it had underestimated the risks for various loans for commercial and buy-to-let property. That triggered a need to boost its capital to cover the riskier products.

The shares tumbled from £22 to £13.45, the largest one-day fall in a British bank’s share price since the financial crisis, and sparked earnings downgrades from several brokers.

Shortly afterwards it emerged that the error hadn’t been picked up by the bank itself but by the Bank of England’s Prudential Regulatory Authority which is charged with overseeing high-street lenders.

Cue another share price collapse to below £11 leaving shareholders nursing losses of more than 50% in seven trading days and sparking rumours of class action lawsuits.

There was a brief moment of respite in late February when the bank was awarded £120m from the Banking Compensation Remedies scheme, but less than a week later the shares resumed their downward spiral after the bank abandoned its medium-term growth targets and revealed a plan to tap investors for £350m of new funding.

While some of Metro’s problems are common to the whole sector – a highly competitive mortgage market, which is squeezing profit margins, and rising wholesale debt markets which make funding more expensive – much of the damage has been self-inflicted.

Earlier this month the shares took another beating as profit in the first quarter halved and ‘a small number of large commercial and partnership customers’ withdrew their deposits due to ‘adverse sentiment’.

The bank has hinted that it might sell or securitise some of the assets which need a higher level of collateral to back them but scenes of customers queuing to withdraw their money conjure up unpleasant memories of the run on Northern Rock in 2007, albeit the latter was on a significantly greater scale.

There will be some investors who think that the shares have fallen far enough, but in our view even if the bank gets its capital raise away successfully the risk of permanent loss of capital outweighs the short-term upside potential. Avoid Metro Bank’s shares.

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