By Emma Rumney and Sinead Cruise
LONDON (Reuters) - Paul Pester, the chief executive of Britain's crisis-hit TSB Bank, is stepping down after months of pressure following a botched IT project that has cost more than 200 million euros ($231 million).
Pester ran the lender for seven years but was heavily criticised for his handling of the IT update in April that led to one of Britain's worst banking outages, affecting up to 1.9 million digital customers.
Richard Meddings, TSB non-executive chairman, will take on the role of executive chairman with immediate effect while the bank, owned by Spain's Sabadell <SABE.MC>, looks for a new boss.
TSB's announcement came the day after online and mobile banking customers again struggled to access their money -- the latest in a series of glitches since the bank was plunged into chaos for weeks following the IT migration.
Meddings said that Pester and the TSB board made the decision about his future together, and that it did not represent any individual responsibility for the IT crisis.
"He's not the fall guy... This is a mutual agreement within the board," he told reporters on a conference call.
Sabadell has put the bill for the crisis at more than 200 million euros so far and it has also tarnished TSB's reputation when it was gearing up to try to win market share with a push into business banking.
Meddings said the bank had good internal candidates to replace Pester but will also look externally, with the process likely to take a few months.
The bank was back to a good level of service, but was still not offering a full suite of products via its digital bank and had too many outages like the one this week, Meddings said.
TSB's troubles began when it tried to move its operations from an IT platform it was effectively renting from its former parent Lloyds Banking Group <LLOY.L> to one built by the IT arm of Sabadell, which bought TSB in 2015.
The move locked thousands of customers out of their accounts for prolonged periods, prompted a spike in fraud and left staff struggling to help as they tried to navigate a system riddled with glitches like appearing in Spanish.
Pester, credited for helping shape TSB after it was spun out into a stand-alone high-street brand following its sale by Lloyds, was accused of mishandling the response.
Nicky Morgan, chair of Britain's Treasury Committee of lawmakers which in June said they had lost confidence in Pester, said it was right for him to step down.
"Paul Pester set the tone for TSB's complacent and misleading public communications," she said in a statement, adding the committee remains concerned about ongoing problems at TSB, including delays in compensating customers.
A source with knowledge of the matter told Reuters Pester would have left the bank anyway, but the IT crisis accelerated his departure.
Pester has now been placed on gardening leave and will receive 1.2 million pounds ($1.5 million) for his 12-month notice period as well as a 480,000 pound historic pay award that dates back to before TSB's acquisition by Sabadell.
His additional variable compensation will be frozen, subject to performance outcomes and independent and regulatory investigations into the IT problems. He had already waived his bonus earlier in the year.
British regulators have launched an investigation into the outage, and TSB has commissioned law firm Slaughter & May to compile a report into what went wrong.
(Reporting By Emma Rumney Sinead Cruise in London and Jesus Aguado in Madrid; Editing by Maiya Keidan and Susan Fenton)