A year ago, I wrote a piece comparing and contrasting Lloyds Bank (LLOY) and the challenger financial Metro Bank (MTRO). Well that worked out well from a long-short perspective: Lloyds - with dividends - lost a touch whilst Metro Bank has absolutely bombed, down over £10 to under £25. I was thinking about Metro Bank again as it came out with another set of numbers which showed more deposits, more lending, more profit...but still the shares are down a further 10% odd. Why such further pain?
Well the trouble is the timing of its big splurge on new lending - mostly mortgages but also some personal lending - appears to be perfectly timed with growing fears about the quality of some of these new, at-the-margin loans. As always - as we saw in 2006 and 2007 - it is those latter loans which are the most lunatic...hence the share price slide on the publication of the results. The fading net interest margin also is a subtle nod to doing all kinds of unsustainable things in a desperate rush for market share. The company's surprise money raising too a few months back, reinforced the notion that Metro Bank is full of potential risks. I still would not touch it.
Barclays (BARC) shares by contrast are up. Its Q3 numbers actually read quite well all things considered. I have talked before about my favourite geek statistics for the financial sector, and it is striking that Barclays overall group return on tangible equity of 11.1% (with double digit returns in Barclays UK and Barclays International) suggests that a fairer value is at least tangible book value...which stands at 260p a share, over 90 pence higher than the current share price. Now given the backdrop I talked about above, Barclays is not going to be immune even with its more mature loan book. Still, all the other moves it is currently making are positive: generating the second highest profit before tax in a decade, taking investment banking market share, confirming the 6.5p dividend payment for the full year, keeping costs under control, generating regulatory capital and progressively sorting out all of its legacy issues - some relating way back to the global financial crisis over a decade ago.
In the numbers it even was confident enough to announce a redemption of some of the expensive preference shares taken out at that time. It also still has an activist shareholder on its books. I heard on a financial TV channel that it will be meeting with the Barclays CEO for a second time shortly. Oh to be a fly on the wall for that conversation. However I know what I would say: keep doing what you are doing - and it will take a very bad recession to keep your shares this much out of favour for long, because a good chunk is already factored in. In my mooted financials cage fight...back Barclays.
Filed under: Barclays, BARC, Metro Bank, MTRO, Mayan Energy, gold, WPP, RPS Group, Malcolm Stacey
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