July 24, 2019 / 4:27 PM / 4 months ago

Metro Bank profits dive, chairman to stand down

(Reuters) - Metro Bank’s (MTRO.L) founder Vernon Hill will step down as chairman, the British lender said on Wednesday, as it reported customers had pulled 2 billion pounds out of the lender this year following a major accounting error in January.

The bank, which muscled onto Britain’s high streets in 2010, also posted an 84 percent fall in half year profit and said it had sold a 521 million pound portfolio of loans to hedge fund Cerberus to bolster its finances.

Its market value plunged in January after the lender disclosed it had under-reported the risk of its loan book by nearly 1 billion pounds - and was forced to raise 375 million pounds from shareholders in May to shore up its capital base.

“This has been a challenging first half for the bank, with deposit outflows following intense speculation at the time of our capital raise in May,” Chief Executive Craig Donaldson said.

The bank added deposits had returned to net growth in the last eight weeks.

It said Hill would stay as chairman until a successor was appointed, after which he would remain as a non-executive director and president.

Hill survived two threatened shareholder rebellions over his chairmanship after institutional investors raised concerns about his lack of independence and questioned payments made to his wife’s architecture firm, which the bank later said would be phased out.

Metro Bank is also facing scrutiny from regulators investigating responsibility for the January loan book error.

Donaldson told Reuters that Hill’s decision to step down as chairman was his own and not prompted by regulatory intervention.

“We’ve made the regulators aware of the announcement today, but it was Vernon’s decision,” he said.

The bank gave no further update on the regulatory probes.

Donaldson said the chairman role would prove attractive to candidates despite Hill - who has previously said he would “probably die” at the bank he founded - choosing to remain on the board.

“As founder, Vernon has a special place in the organisation because he genuinely challenges us all to be better and I think we’re keeping that as a non-exec director.”

Donaldson also said the firm had turned a corner despite the further bad set of numbers. “What happened in May was where the line was drawn,” he said.

Metro blamed the steep fall in half-year profits, to 3.4 million pounds from 20.8 million a year earlier, on “transformation and remediation programmes” to cut costs and address the loan book error.

(GRAPHIC: Metro Bank left far behind after accounting error - tmsnrt.rs/2McgCV0)

The bank’s net interest margin - a closely-watched measure of underlying profitability - fell to 1.62% from 1.85% the previous year. Its core capital ratio, a measure of financial strength, was 15.8%, above its regulatory minimum of 10.6%.

Total deposits of 13.7 billion pounds were in line with the same time a year earlier, but fell 13% from the end of 2018.

The lender said 2019 deposits would be broadly in line with the end of 2018, with a loan to deposit ratio of about 100% by the end of this year.

Metro Bank’s shares closed down 4.2% at 476.4 pence before it reported the results - a far cry from a high of 4,056 pence in March 2018.

Reporting by Noor Zainab Hussain in Bengaluru and Iain Withers in London, Editing by Kirstin Ridley and Mark Potter

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