At time of writing this Thursday morning, challenger Metro Bank (LSE: MTRO) has begun the day with share price up 8% from yesterday’s close. It’s a volatile share, to be sure. But I find this latest increase most interesting as an investor because it follows a car crash of a quarterly result announced yesterday.
Difficult economic times
It continued to report a loss in the third quarter, this time by £4.9m. The outlook isn’t inspiring either. CEO Craig Donaldson mentioned the “challenging macro-economic environment” and that the bank is “further evaluating… future growth plans”.
Mention of the unhelpful economic situation is coming up with increasing regularity across company updates, so in that sense MTRO’s update was nothing new. This is specifically because the banking and financial services sector is sensitive to economic cycles, suggesting that this is a good time to consider some FTSE 100 dependable defensives, even as we keep an eye out for changes in underlying conditions that impact the cyclical shares.
Sharp share price movements of the kind that are being seen in MTRO today can be indicative of these changing conditions. So, what’s the driving force behind this spike despite the poor results?
Early exit
It so happens, that the bank’s founder and chair Vernon Hill gave up his position yesterday, two months before planned. The news came in early yesterday, a few hours before the results did, possibly to assuage investors in advance.
The bank continues to reel from the after-effects of the big accounting error that occurred earlier this year, which put its capital adequacy in a precarious position and was a blow to depositor confidence who then started pulling out from the bank.
To me the share price rise indicates that investors are looking towards better management of the bank, which already faces stiff competition from bigger banks with far longer track records.
Noteworthy nimbleness
There are other reasons for investors to view the bank positively as well. Consider the details of the results, which show some return in deposits’ health. MTRO increased interest rates to attract customers back, which seems to be working. The bank might be running into problems, but I like its pro-active stance to resolve issues, a running thread seen in the past year.
Not long ago, it pivoted fast to raise capital after its initial plan failed, a point I made the last time I wrote about the bank as well. In a nutshell, the bank’s being tested, but I like the dexterity in its responses. I am positive on investing in a company that can be trusted to manage its problems well, even if it doesn’t match up to the Warren Buffett investing style of financial stability just yet.
Just to be doubly sure, though, I’d wait for the next set of results to see more evidence of a turnaround and invest then.