Short sellers continue to raise bets against Metro Bank

Metro Bank shares have fallen dramatically since the start of the year, with the lender’s balance sheet under increased pressure as a result of the Covid-19 outbreak, prompting short sellers to raise bets against the UK challenger bank.

ENA Investment Capital, GSA Capital Partners and Odey Asset Management all upped their short positions against the stock last week, with 8.04% of Metro Bank shares held by short sellers, according to data compiled by the UK Financial Conduct Authority.

Shares in Metro Bank are down 56% year-to-date, with the stock underperforming the broader market with the FTSE 250 down 28% over the same period.

UK bank stocks under pressure amid Covid-19 crisis

Metro Bank isn’t the only UK lender struggling as a result of the economic fallout from the Covid-19 crisis.

Its larger rivals like Barclays, Lloydsand Royal Bank of Scotland (RBS) have all seen significant downward pressure applied to their respective share prices in 2020, with the three lenders down more than 46% year-to-date.

The latter of the three saw its first quarter (Q1) profit halved due to the lender allocating £802 million to cover a spike in bad loans as a result of the Covid-19 crisis.

However, it is worth noting that despite RBS reporting a significant decline in quarterly profit, the lender did manage to beat analysts’ forecasts due to a 9% rise in income from its investment banking unit NatWest Markets due to increased market volatility.

Société Générale downgrades Metro Bank

Analysts from Société Générale downgraded Metro Bank from a ‘buy’ rating to ‘hold’ in April and also lowered their price target for the UK challenger bank to 100p per share.

Based on Metro Bank trading at 87p as of 12:45 (GMT) on Tuesday, analysts from the French investment bank believe the stock has an implied upside of 15%.

Société Générale’s uninspired outlook for the UK challenger is no surprise after the lender was order by the UK Competition and Markets Authority (CMA) ordered it to repay £11.4 million to customer for overdraft charges in April.

Around 130,000 Metro Bank customers will receive average payments of approximately £86 after the lender failed to adequately warn its customers about unarranged overdraft charges.

‘We are very sorry that we didn’t include all the information we should have done on our overdraft text alerts, and that on certain occasions some customers did not receive these alerts before 10am as they should have done,’ David Thomasson, Metro Bank chief commercial officer, said.

‘This isn't the level of service that we pride ourselves on providing and we are now contacting any customers who have been impacted to put things right for them as quickly as possible,’ he added.

The fine is a blow for Metro Bank, with the lender eager to cut costs after a disappointing performance in 2019 due to an accounting error that caused it to play down the risk of a significant proportion of its mortgage loans which caused it to exaggerate the strength of its balance sheet.

The accounting error prompted regulators to launch an investigation into what went wrong, while the bank’s share price collapse with the stock showing no signs of recovering any time soon.

How much does it cost to buy UK shares with IG?

There are three ways to ‘buy’ UK shares with IG: spread betting, trading CFDs or buying physical shares. The cost will depend on which method you choose. The table below illustrates how the costs to get exposure to £10,000 of Lloyds stock, which is equivalent to 16,000 shares (quoted at 62.5p a share).

Remember, spread bets and CFDs are derivatives, which come with higher risk and reward than investing.

Cost to get exposure to Lloyds stock

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Note: Amounts do not include overnight funding charges and taxes. Spread bets are not subject to tax. CFDs are free from stamp duty, but subject to capital gains tax. Share dealing is subject to both stamp duty and capital gains tax.