The bank, which muscled onto Britain's high streets in 2010, also posted an 84% fall in half-year profit on Wednesday and said its founder Vernon Hill would stand down as chairman.

Metro Bank has struggled to rebuild investor confidence after disclosing in January it had under-reported the risk of its loan book by nearly 1 billion pounds, sending its shares into a tailspin that wiped more than 1.5 billion pounds off its market value.

The error forced the bank to raise 375 million pounds from shareholders in May to shore up its capital base, prompting the Bank of England to say the lender was robust and fuelling a short-lived stock rally.

However another quarter of poor numbers released after market close on Wednesday sent its shares plummetting to new lows on Thursday.

Shares fell as much as 19% before paring back some of their losses. They were down 16% at 400 pence at 0904 GMT, a far cry from a high of 4,056 pence in March 2018.

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.

The bank's net interest margin - a closely watched measure of underlying profitability - fell to 1.62% from 1.85% the previous year.

Goodbody analyst John Cronin said investors would be concerned by the pressure on profitability.

"We believe that the optimal 'end game' is for Metro to be sold to a third party," he said.

Metro's stock has been volatile since the error in part because a number of hedge funds had placed bets that its performance would deteriorate.

Three funds had short positions equating to more than 0.5% of Metro stock at the end of Tuesday, the level at which the British markets regulator demands disclosure.

Short bets involve paying to borrow the shares before selling them on to another investor, hoping to buy them back at a lower price before returning the stock to the original owner.

Odey Asset Management's was the largest position, at 3.10%. FIS Astec Analytics data rates Metro Bank a 10/10 on its "borrowing activity rating", signalling its shares are very expensive to short and also scarce.

CHAIRMAN SEARCH

Metro Bank said that founder 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 on Wednesday 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 he believed the bank had turned a corner despite another set of poor numbers, with deposits returning to net growth in the last eight weeks of the period.

The bank's loan book grew by a quarter year-on-year, while fee income was up 61%.

"What happened in May was where the line was drawn," he said.

(Reporting by Iain Withers in London and Noor Zainab Hussain in Bengaluru; Editing by Sinead Cruise and Jan Harvey)

By Iain Withers and Noor Zainab Hussain