Where next for Metro Bank shares?

Bargain hunters sent Metro Bank shares sharply higher today following the lender's successful cash call.

A successful fundraising triggered a wave of buying interest in Metro Bank (LSE:MTRO) today as investors sensed an opportunity for a bombed-out stock that's fallen by as much as 78% this year.

The bigger-than-expected proceeds of £375 million from last night's share placing provide Metro with the funds to reinforce its capital position following a recent accounting blunder.

The City responded to the over-subscribed fundraising by driving shares 22% higher at the opening bell, with the high street lender later 17% stronger at 629.5p.

That's still a far cry from 2,202p in January, prior to the shock announcement that some commercial loans on its balance sheet had been wrongly classified in risk terms. With the bank seeking extra capital to hold against these loans and to support future growth, the crisis led Metro into a second fundraising in less than a year.

Shares had been trading as high as 4,000p just over a year ago, but the cash calls and the impact of  an ultra competitive mortgage market on Metro's net interest margin have recently served to heighten interest from short-sellers.

One respected banking analyst also highlighted that Metro was the victim of a trend for significant de-ratings of stocks valued on the basis of strong future performance.

Metro has grown rapidly since becoming the first high street bank to open in the UK in over 100 years in July 2010. The challenger bank now has an estate of around 66 outlets, with 1.7 million customer accounts and total deposits of £15.1 billion.

After recent events and negative coverage, Metro now has work to do to rebuild confidence among customers and in the City. Questions remain over the future of its leadership team, while regulators are also taking a close interest in how the accounting mistake came about.

In its most recent trading update at the start of May, Metro said adverse sentiment following January's update impacted deposit growth in the quarter, with a small number of large commercial and partnership customers making withdrawals. However, it saw a return to net inflows in April following a quarter-on-quarter increase of 6% in customer accounts. 

Chairman and founder Vernon Hill added today that the support shown by existing and new shareholders in the fundraising showed "confidence and belief in Metro Bank's strategy".

The Prudential Regulation Authority also welcomed the steps taken by the bank. It said today:

"Metro Bank is profitable and continues to have adequate capital and liquidity to serve its current customer base. It has raised additional capital in order to fund future growth."