Metro Bank shares jumped by more than a quarter on Wednesday after its founder quit in the wake of a major accounting error and investors backed a new fundraising effort for the embattled lender.
Vernon Hill, Metro’s chairman, will leave the board by the end of the year as the bank continues to deal with the fallout from a major accounting error.
The announcement came as Metro launched a fresh bond sale initially worth £300m, a week after pulling a similar offer due to lack of interest from investors.
However, Wednesday’s bond sale was oversubscribed, allowing the bank to raise £350m, although at a steeper interest rate of 9.5%. The bank needed to raise money to meet regulators’ capital requirements.
Metro Bank shares rose by 26.7% to 228p. However, the shares are still worth less than a tenth of their value 12 months ago, after a disastrous year for the challenger bank.
In July, Hill announced plans to resign as chairman but he had been expected to remain on the board as an independent director.
Metro said on Wednesday that Hill would quit the group by 31 December and planned to install one of its existing independent directors as chairman if it failed to find a candidate in time.
Hill previously said he would “probably die” before stepping down from the bank but Metro insisted it was his decision to leave the lender he founded in 2010. He remains the bank’s ninth largest shareholder with a 3.6% stake, worth about £11m.
Hill’s tenure has been mired in controversy in recent years. It led to Metro Bank severing ties with the architecture firm owned by Hill’s wife amid criticism over £25m worth of payments made by the lender to her business. The lender has also faced pressure to overhaul its leadership after a misreporting error in January.
Metro Bank is still dealing with the fallout, which involved the misclassification of £900m-worth of loans as being less risky than they were. The discovery meant the bank had a smaller capital cushion to protect it from a larger pool of risky loans in the event of a downturn. It prompted an investigation by financial regulators, which is ongoing and was recently widened to include Metro Bank’s senior managers.
The bank has struggled to contain rumours about its financial position after a spate of negative news, including surprise plans to tap investors for a further £350m and a 50% drop in its first-quarter profits. This was widely shared on social media, causing worried customers to queue at some west London branches to empty safety deposit boxes and withdraw cash.
Metro successfully completed its equity fundraising in May but was dealt a blow last month when it was forced to cancel a bond sale of up to £250m after failing to drum up interest from investors, despite offering a high interest rate of 7.5%.
Metro Bank’s senior independent director, Sir Michael Snyder, said: “Vernon is the inspiration behind Metro Bank, the first high street bank to open in the UK in over 100 years. It is thanks to his vision and leadership that we have grown to 70 stores around the country, serving over 1.8 million customer accounts and we’ve twice been ranked as the number one bank for overall quality of service for personal banking.
“The board shares Vernon’s view that Metro Bank has now reached a point where an independent chairperson is appropriate to oversee the next stage of our journey.”