Metro Bank reports third-quarter loss, deposit outflows as Chairman exits

By Sinead Cruise and Lawrence White

LONDON (Reuters) - Britain's troubled Metro Bank <MTRO.L> reported a loss for the third quarter, said its chairman Vernon Hill has stepped down two months early, and warned it may have to curb its growth plans as it battles to recover from an accounting scandal.

Metro Bank on Wednesday also said it saw some 213 million pounds ($274.49 million)in deposit outflows in September, heaping pressure on the lender whose business model rests on attracting savers with its brightly colored city-center branches.

The grim earnings report after the market close could put further pressure on Metro Bank's shares on Thursday morning, albeit the 2.2 million pound loss was less than some analysts had feared.

The stock has fallen nearly 90% this year after the lender disclosed a major accounting error that had under-reported its exposure to higher-risk loans by almost 1 billion pounds.

Metro, famed for its glossy branch network and unconventional customer perks including pet treats and weekend opening hours, earlier this month had to raise capital at expensive rates to fulfill a regulatory requirement.

Metro Bank's woes will be a source of concern to British financial authorities, who in 2010 granted it the first new high street banking license in Britain in 150 years in a bid to foster competition in the sector.

"This financial performance reflects a challenging nine months for the bank," Chief Executive Craig Donaldson said, warning that the expensive fundraising this month could impact its growth plans and business model.

The bank said it will update on its strategy in detail when it reports full year results in February.

Analysts said they expect the lender could announce a halt to its branch expansion plans as one part of the plans to reign in costs.

HILL OUT

The bank earlier on Wednesday announced U.S. entrepreneur and founder Hill would leave two months ahead of schedule.

Board member Michael Snyder will be interim chairman until a permanent successor is appointed, subject to regulatory approval.

British regulators have yet to take any action against Metro or its management team for the January accounting error but the lender has warned that possible penalties could be substantial and could lead to criminal investigations.

Metro had said in July that Hill, who regularly referred to the bank's customers as 'fans', would step down from his role after a permanent replacement had been found.

The bank did not say why that plan had changed, but a spokeswoman said the decision was entirely Hill's and was not linked to the ongoing regulatory probes.

(Reporting by Sinead Cruise and Lawrence White; Editing by Clara Denina, Mark Potter and Alexandra Hudson)