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Metro Bank's new CEO not expected before February strategy update at earliest

Craig Donaldson's replacement as Metro Bank PLC CEO is unlikely to be announced ahead of the bank's strategy update in February next year and possibly considerably later, said analysts.

The bank announced that Donaldson would step down by the end of the year but remain available as an adviser until the end of 2020. He will be replaced on an interim basis by Dan Frumkin, current chief transformation officer.

SNL Image

Metro was the first new high street bank in the UK for 100 years but has endured a troubled year. Source: Google Street View

Donaldson, who has been at the bank for a decade, is the second top executive to step down from his post in recent months following the announcement in October that chairman and co-founder Vernon Hill would leave at the end of this month. Hill had previously suggested he would die before stepping down from the bank he co-founded. Michael Snyder, senior independent director, replaced Hill as interim chairman.

Shareholder moves

This latest development comes just days after U.S. hedge fund tycoon Steve Cohen, a long-standing supporter of Hill, sold 3.8 million shares in the bank for about £7 million. However, Colombian billionaire Jaime Gilinski Bacal bought a 4.28% stake in the bank, worth almost £15 million, becoming a top five shareholder.

Both Hill and Donaldson's departures follow a tumultuous few months for the bank that revealed at the start of the year that the Financial Conduct Authority and Bank of England were investigating it over an accounting error. Regulators discovered that Metro lender had misjudged the riskiness of a string of property loans and, as a result, the lender had to increase its total of risk-weighted assets by £900 million.

Donaldson offered to quit following the revelation of the accounting error but this was rejected by Metro's board, though Donaldson did give up his bonus, which was worth up to £1.5 million.

Strategy update

The bank has promised to update investors on future plans when it unveils full year-results in February, and a new CEO is unlikely to be announced before then, said John Cronin of Goodbody.

"We suspect a new chief executive is unlikely to be announced ahead of the strategy update the pool must be extremely limited while both the FCA and PRA investigations and the strategy reassessment is ongoing," he wrote in a note.

Another analyst, who declined to be named, said the appointment of a new CEO was unlikely before the middle of next year.

"I would be surprised if any new appointment was made before the FCA and PRA investigations were published. There doesn't appear to be much sign of anyone being interested in the job so far," he said. "But Donaldson's departure, following Hill's, is likely to be good for the share price of the bank."

The bank's shares were up 0.4% just before market close on Dec. 5, the day after the announcement that Donaldson would be leaving.

Following the revelation of the accounting error on the property loans, the bank reported that £2 billion of deposits had been withdrawn in the first half of the year, largely by commercial lenders, while its share price has fallen by 91% since this time last year. It was forced to tap shareholders for £350 million to shore up its balance sheet, though it actually raised £375 million. It reported a third-quarter loss of £4.9 million.

Neither the FCA nor the Bank of England would comment on when the results of their investigations into Metro would be published.

Not all bad news

Nevertheless, the bank won praise for its performance in the third quarter, with analysts at Jefferies noting that it outperformed their expectations.

"On costs, Metro appears to be delivering on its promised transformation program. Retail customer deposits grew 14% quarter on quarter despite £213 million of deposit outflows elsewhere in September. On balance, Metro's ship looks steadied with robust capital across the structure 16.2% CET1 and the onus is now on management to execute operationally," Jefferies' analysts wrote.

Goodbody suggested that Metro's retention of Donaldson's services as an adviser was an indication that it expected the regulatory inquiries to have a relatively benign conclusion without uncovering evidence of an intent to misstate the riskiness of the loans affected.

"So perhaps a rap on the knuckles, a manageable but headline grabbing fine and some mild inflation in Pillar 2 requirements, we don't think the [Bank of England] wants Metro to fail," wrote Cronin.

Metro was the first new high street bank in the U.K. for 100 years and Hill and Donaldson were key to the bank's strategy of disrupting established high street banks by rolling out branches open seven days a week with long opening hours.