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Metro's shares up sharply as chairman quits, bond issuance oversubscribed

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Metro's shares up sharply as chairman quits, bond issuance oversubscribed

Metro Bank PLC's shares jumped by nearly a third after the British bank announced Chairman Vernon Hill would quit, and also said its £350 million high-yield bond sale had been oversubscribed at £550 million.

Hill said in July that he would "probably die" in the post at the bank he founded, but Metro announced on Oct. 2 that he would step down at year-end after reports that the board had put pressure on him to leave. Its shares rose 32% in mid-afternoon trading in London, but remain around 90% down on the year.

The bank refused to comment on suggestions by analysts at Goodbody that there could be further management changes to come or that the CEO Craig Donaldson would quit shortly.

Goodbody's analyst John Cronin said the bond sale would stabilize the bank in relation to its forthcoming regulatory minimum equity and debt requirement, called MREL, due on Jan. 1, 2020, though this came at a price.

"The negative profitability impact for Metro will only accelerate the need for wider strategy recalibration and, potentially, further asset sales post-Brexit — as well as potential further board changes," Cronin wrote in a note.

"This transaction could be a prelude to further activity. We think that a majority of Board members are thinking in this direction at this point."

The first high street bank to win a full banking license in the U.K. for a century, Metro has been hit hard after reporting that it had miscalculated its risk-weighted assets in February, for which it is being investigated by the Bank of England and the Financial Conduct Authority. Then, on Sept. 24 it had to pull the sale of up to £250 million of high-yield senior nonpreferred bonds required to meet incoming regulatory requirements after failing to win orders for more than £175 million.

On Oct. 2, Metro tried again with a bond sale, offering £300 million of senior nonpreferred bonds, eligible to meet the bank's incoming MREL regulatory requirements. The bank said later that it had increased the issuance by £50 million owing to the large size of the order book.

The yield on the bonds was 9.5%, higher even than the 7.5% yield offered on last week's suspended bond sale, which was itself higher than that offered by banks in similar circumstances.

Metro said the new bond sale had been oversubscribed at £550 million. Metro also confirmed that Bank of America Corp was the sole book runner, which Goodbody suggested indicated a small select group of investors could take up the majority, if not all, of the bond issue, calling it effectively "a done deal."

Cronin also noted that Hill, who had previously said he would resign as chairman but remain on the board, did not comment in the bank's announcement of his decision to step down.

"We suspect that a majority of the board members wanted to see this happen," he said. He added that Hill's vision and experience in building banking businesses would be missed at board level at the bank.