UPDATE 2-Vernon Hill, chairman of Britain's Metro Bank, to step down

Lawrence White and Abhinav Ramnarayan

* Lender's shares have fallen 89% this year

* Colorful American entrepreneur leaves amid turmoil

* Metro's rapid growth since 2010 follows U.S. blueprint

* Bank relaunches bond deal at costly 9.5% yield (Recasts, adds share price, investor reaction, bond deal)

LONDON, Oct 2 (Reuters) - Vernon Hill, chairman and founder of Britain's troubled Metro Bank is to step down earlier than expected after a turbulent year in which the bank's shares have dropped nearly 90% to record lows.

Metro Bank has struggled to reassure shareholders and customers since disclosing a major accounting error in January. Its troubles intensified last month when it had to ditch a 250 million pound ($307.15 million) bond issue after failing to attract investors despite offering a hefty yield.

Metro successfully relaunched the bond issue on Wednesday at a higher yield of 9.5%, sending the bank's shares up as much as 29%.

The bank had said in July that Hill, a U.S. entrepreneur who was the public face of the bank, would step down as chairman once a successor was appointed.

Metro Bank said on Wednesday that if the search for a new chairman was not completed by the end of the year an independent non-executive director would take on the role on an interim basis. Hill will also step down from the board.

A Metro spokeswoman said Hill would not be making any comment.

Hill built a reputation in the United States and in Britain for taking on the banking industry by rolling out customer-friendly branches with brightly colored decor that stayed open longer than competitors.

He referred to customers as fans and regularly posed with his dog Duffy in publicity shots for the bank.

But Metro's strategy of opening branches seemed at odds with a broader industry shift towards digital banking and Hill upset Metro Bank shareholders in Britain last year over payments made to an architecture company owned by his wife Shirley.

Hill had already attracted scrutiny in the United States over the use of the design company run by his wife at U.S. lender Commerce Bancorp. Commerce Bancorp was ultimately acquired by Toronto Dominion Bank.

We hope this change in leadership will help the Board draw a line under the governance issues at Metro Bank and focus on restoring shareholder trust and improving financial performance," said Ashley Hamilton Claxton, head of responsible investment Royal London Asset Management, a Metro Bank shareholder.

"The negative profitability impact for Metro Bank will only accelerate the need for a wider strategy recalibration and, potentially, further asset sales post-Brexit," said John Cronin, analyst at Dublin-based broker Goodbody. ($1 = 0.8139 pounds) (Reporting by Lawrence White, editing by Sinead Cruise/Louise Heavens/Jane Merriman)