The Metro Bank logo sits on a Metro Bank Plc branch in the City of London, U.K., on Wednesday, Feb. 27, 2019. Metro Bank, the lender founded by U.S. entrepreneur Vernon Hill, plunged to a record low after it disclosed that British regulators are probing how it misclassified assets, an incident that prompted a share sale. Photographer: Chris J. Ratcliffe/Bloomberg
Metro Bank said that total deposits had fallen to £13.7bn by the end of June compared with £15.7bn at the start of the year © Bloomberg

Shares in Metro Bank fell to an all-time low on Thursday as investors reacted to a messy plan to replace co-founder Vernon Hill as chairman and the revelation that customers pulled £2bn of deposits from the lender in the first half.

On Wednesday evening, the bank said it would start searching for a new chairman but did not set a timetable for the appointment. Mr Hill — who will stay on the board as a non-executive — set the stage for a protracted transition by telling the Financial Times he wanted his replacement to spend some time as a director before taking the helm. 

Mr Hill pledged to remain deeply involved in running the bank he founded, vowing not to take a “back seat”.

He said: “I’m not leaving. I would never leave at a low point. Think of me as a founder that plays a different role from a non-executive director. ‘Back seat’ is not a word they use for me very often, but I’m very happy to have an independent chairperson with skills that complement mine.” 

The company’s shares were down almost 16 per cent at 401p in early trading in London on Thursday, taking the decline for the stock this year to 76 per cent. 

Mr Hill’s vacation of the chair may be seen as a victory for regulators, who had long been uneasy about Mr Hill’s leadership of the bank. But governance experts expressed astonishment at the unusual decision to keep him on the board.

“I’ve never seen anything like it,” said one investor. “How do you stop him being chair in all but name?”

Asked if he was stepping back entirely of his own volition, Mr Hill said: “I wouldn’t go that far: some of the investors in London have suggested it for a long time.” 

Mr Hill, a brash American who was in the year above Donald Trump at Wharton, founded the eight-and-a-half-year-old lender with a pledge to revolutionise British banking by improving customer service and offering longer opening hours. 

He recently said speculation that he would stand down from the chair was “just gossip” and that he would “probably die” at the company. But he told the FT those comments were “a little bit of a jest”. 

He also said Metro Bank’s recent difficulties had been “blown out of proportion”, adding: “We’ve had eight-and-a-half years where nothing went wrong, which is a miracle. It’s very hard to build a major bank from scratch without some bumps.” 

Metro Bank announced the 73-year-old’s exit as it revealed its customers withdrew £2bn of deposits in the first six months of the year following a misreporting scandal that broke in January, which forced the bank to raise £375m of fresh capital in May. 

The bank said that total deposits had fallen to £13.7bn by the end of June compared with £15.7bn at the start of the year, which Craig Donaldson, chief executive, attributed to a “period of intense speculation” following the scandal. 

Metro Bank said the deposit flight was “primarily driven by a limited number of commercial customers withdrawing” their cash, adding that total deposits had returned to growth in the past eight weeks with more than £700m of net inflows. 

“It’s been a humbling first half, I’m not going to dress it up,” Mr Donaldson told the FT. “But I think we are back on track. We did lose £2bn but to get £700m back shows that the momentum is back.” 

The bank revealed the decline in deposits as it reported a statutory loss of £1.2m after tax for the second quarter versus a profit of £8.8m a year ago. It attributed the loss in part to the cost of fixing the failings that resulted in the January scandal, when the bank revealed that it had mis-categorised the riskiness of a large chunk of loans. 

The error meant the bank did not hold enough capital, forcing it to raise the extra funds in May. The fundraising helped push the bank’s core equity tier one ratio, a key measure of balance sheet strength, to 15.8 per cent at the end of the second quarter, which it said was “materially” higher than its regulatory minimum. 

Metro Bank also confirmed it had sold a £500m portfolio of loans back to Cerberus, the private equity group, in a move it said would boost its CET1 ratio to 16.1 per cent. Total revenues of £109m were broadly in line with analyst expectations. 

John Cronin, an analyst at stockbroker Goodbody, described Metro Bank’s first-half results as “a mixed bag”, adding: “Deposit outflows were substantial but have now stabilised in overall terms.” 

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