Attn: MUST READ if you use Metro Bank

🧠 The Big Brain
Why we need to be MORE capitalist, not less

Always a controversial topic, but some things just need to be said.

Capitalism takes the blame for many evils in the world. It’s like democracy: the worst type of system (except for all the others).

However, it’s also misunderstood. This blame game obscures reality, and distracts us from the role that WE play (or at least, should be playing) in a capitalist society.

The greedflation lie is a perfect example.

Companies raise prices.

That’s them playing their role. Testing the market.

Price discovery.

Then we pay those prices and confirm them…

Even for stuff that really isn’t essential.

Like the junk PepsiCo sells.

We do this dance time and again.

Until we find a price where they take it too far and we refuse to pay.

Which is where Pepsico & Coca-Cola are right now.

Losing share to private label brands, with both stocks down by over 13% in 10 weeks.

Is there a nice trade here though?

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⚡ The Spark
Bank wants £600m loan but makes no money

Imagine walking into a bank and asking for a loan.

Now imagine doing that and having no job, no income. In fact, in the spirit of honesty, you actually losing money most of the time, keep getting yourself into more debt. Digging a deeper and deeper hole.

Oh and you occasionally get into trouble with the law by doing things that are errm, frowned upon…

Should the bank lend you money?

If you answered yes, Metro Bank would LOVE to hear from you.

See, that’s basically their entire history.

And now they’re begging for cash. Six hundred million pounds to be precise.

Now, there’s a tiny little problem. At the time of writing, Metro Bank’s share price gives them a market valuation of just over 63 million pounds.

So, ‘the market’ says they’re worth 63 million, and they need 600 million to keep going.

Doesn’t really compute. And this quote from the Sky News report does nothing to reassure:

If there’s no suggestion, somebody isn’t doing their job properly. We questioned their ability to continue back in 2020 - it’s a miracle they’ve lasted this long.

Aside from the high cost business model (lots of physical branches open 7 days a week), they’ve made some elementary mistakes such as allocating risky assets as non-risky, for which they were promptly fined…

And they turned up in the Hamish Ogston sex trafficking scandal too:

So, is Metro Bank about to collapse?

Probably.

Maybe they’ll get some cash and prolong the inevitable, but without a massive structural overhaul, it’s hard to see them turning the corner.

Which means someone else will likely take them over (although they may go bust first).

So if you have cash with Metro Bank, it might be worth looking at your options.

Anything less than £85,000 is protected by FSCS cover, so you should be able to recover that, but you could be without your cash for a while in the meantime.

See although FSCS protection is great, there’s still an admin process to go through.

Back in January 2015, Alpari UK went under. The FSCS didn’t finish distributing those funds and making customers whole, until 18 months later.

Is it worth the risk?

And if they do go under, look out for the headlines blaming it on rising interest rates instead of everything else…

💡 The Lightbulb
Why is Virtu down >50%?

Does this show how LITTLE retail is left in the market?

I hadn’t actually noticed this in Virtu before, the algorithmic hedgefund and market maker that was less of a target than Citadel during stock mania in 2020/21.

That’s some decrease.

Is it reflecting the health of the firm or just higher rates and no more retail punting in shitcos?

Shitco szn: my guess is the latter to be honest with you.

The firm was famous for making a profit every day for five years bar ONE day.

So really it’s a reflection of higher rates causing fewer people to participate in the market…

If an algorithmic market maker can’t quote as tight by buying retail flow then they’re going to have to quote wider and be more uncompetitive.

The fact the retail flow has diminished considerably has clearly had a tonne of influence on the firm’s share price.

What’s the trade?: should be obvious.

Buy Virtu when stuff gets crazy again.