How to buy and short Metro Bank shares
Metro Bank is the first UK high street bank to launch in over 100 years, but it has had a tumultuous beginning. If you’re interested in buying and shorting Metro Bank shares, you can learn more in this step-by-step guide.
How to buy Metro Bank shares
You can buy Metro Bank shares through a share dealing platform. Such platforms enable you to take ownership of shares outright, meaning that you will profit if the price rises, or from any dividend payments that a company pays out.
To buy Metro Bank shares with IG, you’ll need to follow these steps:
- Create a share dealing account
- Log in
- Look for ‘Metro Bank’ in the ‘finder’ panel
- Choose the price you want to deal at and buy the shares
- Monitor your position and close it when you want to accept profits
If you are due to receive any dividend payments from investing in shares, IG will pay them into your share dealing account after we have received the funds. At the time of writing, Metro Bank has never paid a dividend on its stock.
Learn about IG’s online share dealing platform
How to short Metro Bank shares
With the traditional method of shorting shares, you would borrow Metro Bank stock from another investor who already owns them, and then sell the shares at the current market price. If the shares fall in value, you can buy the shares back for a lower price, return them to the lender and keep the difference in value as profit.
When going short, you expect that the price will fall, and you will profit if this expectation is correct. However, if your prediction is wrong and the price rises, you will incur a loss which will increase alongside any increase in price of the underlying.
Another way you can short Metro Bank shares is with CFDs and spread bets. Rather than taking ownership of the underlying asset, these products enable you to speculate on the price of stocks, indices, forex pairs, commodities and cryptocurrencies – whether they are rising or falling. The degree to which your predictions are correct determines your profit or loss.
Many people choose to trade derivatives because it enables you to:
- Trade on margin. This means you can open a position with a small deposit. This can magnify your profits, as any gains on your position will be calculated from the full exposure of the trade. However, it will also amplify any losses
- Pay less tax. Spread betting is completely tax free and you don’t pay capital gains tax.1 CFDs are free from stamp duty, but not exempt from capital gains tax1
- Go long or short. This means you can take advantage of markets that are rising as well as falling
- Hedge against risk. This is because you can hold two or more positions at the same time with the intent of offsetting any losses from the first position with gains from the other
Follow these steps to short Metro Bank shares:
- Create an IG spread betting or CFD account
- Log into the IG platform and look for ‘Metro Bank’ in the ‘finder’ panel
- Open a position to ‘sell’ Metro Bank shares and monitor the market
- If the market falls as you predicted, you’d close the position at a lower price and profit from the difference
- If the market increased instead, you’d cut your losses by closing the position at a higher price, paying the difference
Shorting stocks can be an effective way to hedge against any downward movements in a market in which a trader also has a long position, or in which an investor has bought shares.
Understanding Metro Bank: a brief history
Metro Bank was founded in 2010 by Vernon Hill, and it was the first new UK high street bank to launch for over 100 years. Initially, the bank had planned to open between 200 and 250 stores in Greater London within its first ten years. The bank’s first location opened in Holborn (London) on 29 July 2010.
After its founding, the bank raised capital equal to $200 million in 2012. This came from investors including David and Simon Reuben (members of the UK’s second-richest family), American hedge fund manager Steven A. Cohen, and Fidelity Investments Inc.
Metro Bank failed to make a profit for several years after its launch, reporting pre-tax losses of over £100 million from 2010 to 2013. However, the bank’s founder stated that initial losses were expected as part of the rapid growth plan for the company.
Early in 2019, Metro Bank came under scrutiny after it was revealed that the bank had miscategorised £900 million worth of loans as being less risky than they actually were. This prompted an investigation by the Financial Conduct Authority (FCA) into the miscategorisation, and the investigation was widened into senior management at the bank to assess whether there was any involvement.
After this, Metro Bank attempted to raise another £200 million through the sale of 7.5% bonds, but the process didn’t raise the necessary capital, which caused its share price to fall further in late September 2019.
Metro Bank shares: the basics
Metro Bank is listed on the London Stock Exchange (LSE) under the MTRO ticker. The shares have been in a decline since late in 2018, leading them to become the second most-shorted shares on the UK stock market at the time of writing, having lost over 90% of their value from October 2018 to October 2019.
Metro Bank’s main competitors are other UK high street banks. Examples include Lloyds (LLOY), Barclays (BARC) and Royal Bank of Scotland (RBS). Banking shares have been some of the most traded shares in the UK in recent years because of the uncertainty surrounding Brexit. This is also true because of the integral role that banks play in modern society, meaning that there will always been a demand for banks from consumers.
However, despite posting positive revenue growth of 17% year-on-year (YoY) from March 2018 to March 2019, Metro Bank’s share price has been in virtual freefall, although this is not exclusive to Metro Bank but a reflection of the wider UK and European financial sector.
Metro Bank key personnel: who manages the company?
There are ten members of the executive leadership team at Metro Bank:
|Position at Metro Bank|
|Craig Donaldson||Chief executive officer|
|Dan Frumkin||Chief transformation officer|
|David Arden||Chief financial officer|
|Aileen Gillan||Chief risk officer|
|Danielle Harmer||Chief people officer|
|Aisling Kane||Chief operating officer|
|Paul Riseborough||Chief commercial officer|
|Mark Stokes||Managing director commercial banking|
|Ian Walters||Managing director retail and business banking|
|Cheryl Newton||Chief information officer|
What is Metro Bank’s business model?
Initially, Metro Bank’s business model was based on rapid expansion, both of locations and of customer accounts to ensure the bank was competitive on the UK high street. However, following the series of setbacks – including the failed £200 million bond offering to raise capital – plans for expansion were restricted and gains consolidated. The company is currently under investigation by the FCA as a result of the loan scandal in 2019, and it remains to be seen whether it will have to readjust its business model following the findings.
Metro Bank fundamental analysis: how to analyse MTRO
Before you take a position on Metro Bank shares, you should carry out a fundamental analysis to determine whether the shares are currently oversold or overbought – which could mean you either go long or short.
Fundamental analysis involves looking at the fundamentals of a company, including the senior leadership, its financial statements, its operations, and consumer demand for its products and services. As well as this, you can use the following three formulas to show you information about a company’s stock price and future earning potential, which can help you to determine whether you wish to open a position.
Metro Bank’s price-to-earnings ratio
Metro Bank’s price-to-earnings (P/E) ratio can be used to assess the value of its stock. This is because the P/E ratio shows how much you would need to spend on Metro Bank shares to make a £1 profit. If the company has a high P/E ratio compared to its direct competitors (such as other UK high street banks), then it could lead investors to believe that the company’s stock is overvalued.
To calculate the P/E ratio, you would need to divide the market value per share by the earnings per share (EPS). The EPS is calculated by dividing the total company profit by the number of shares it has issued. At the end of September 2019, Metro Bank’s P/E ratio was 4.30.
Metro Bank’s return on equity
Return on equity (ROE) measures a company’s return on shareholder capital. ROE is expressed as a percentage and it can be calculated by dividing a company’s net income by the total amount of shareholder equity.
For potential investors or traders, a low ROE could mean that a stock is currently overvalued. This is because the issuing company is not currently generating as much income per dollar of shareholder investment as its competitors.
Metro Bank’s relative dividend yield
The dividend yield compares annual dividends to its current share price. The relative dividend yield is a company’s dividend yield compared to the dividend yield of an entire index or the average for other firms in the sector. While Metro Bank hasn’t yet paid a dividend, it is still useful to know about the relative dividend yield metric as it could pay a dividend in the future.
To calculate the relative dividend yield of a stock, you would first calculate the company’s dividend yield by dividing its annual dividend by the current share price. Next, divide the dividend yield by the average dividend yield for the index or competitors you want to compare it against.
If the result of is relatively low, it might suggest that the company’s shares are currently overvalued when compared to the shares of its competitors.
1 Tax laws are subject to change and depend on individual circumstances. Tax laws may differ in a jurisdiction other than the UK.
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This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
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