28th Nov 2019 08:26
(Alliance News) - Virgin Money UK PLC on Thursday made a "difficult" decision to suspend dividend payments despite a "resilient" annual performance.
Virgin Money was known as CYBG until the end of October, changing its name as part of a rebranding following the purchase of challenger bank Virgin Money for GBP1.7 billion in October 2018. It also owns Clydesdale Bank and Yorkshire Bank.
A year ago, as CYBG, the Glasgow-headquartered lender paid a 3.1 pence dividend for the year to October 2018, up from 1.0p a year before that.
However, Virgin Money will not be returning any cash for its recently ended financial year due to PPI provisions, which have amounted to GBP385 million in the fourth quarter.
"Our statutory result was significantly affected by additional PPI provisions, driven by the unprecedented surge in PPI information requests in August, along with anticipated Virgin Money acquisition-related costs," said Chief Executive David Duffy.
"We, like the rest of the industry, were surprised by the scale of the PPI information requests and complaints during August. We have moved swiftly to address the issue and are leveraging innovative technology solutions to enable us to deal with genuine customer complaints as quickly, and as cost-effectively, as we can," he continued.
"It is nonetheless frustrating to incur a further GBP385 million in provisions in the fourth quarter as we look to close out this legacy issue."
Extra PPI provisions a year ago had also pushed what was then CYBG to an annual loss. For its recent year, this pretax loss widened, to GBP232 million from GBP164 million.
On an underlying basis, pretax profit declined by 7.2% to GBP539 million, which Virgin Money blamed on higher impairments from the adoption of the IFRS9 accounting standard.
Virgin Money's net interest income nearly doubled to GBP1.51 billion from GBP851 million, with the net interest margin meeting guidance, coming in at 1.66%.
Customer lending growth was 2.9% to GBP73.0 billion, with deposit growth of 4.6% to GBP63.8 billion. Mortgage lending, which makes up the great majority of customer lending, was 1.7% higher than the year before.
Virgin Money's common equity tier 1 ratio, or CET1, was 13.3% for the year from 15.1% the year before, which reflects legacy conduct as well as restructuring and acquisition costs.
"In the first year of our newly combined business, we have delivered a good operating performance in challenging conditions and made great progress on the integration and rebrand to Virgin Money," said CEO Duffy.
"Our customer divisions have performed well - we have delivered a further GBP2 billion in net lending to support UK SMEs and consumers, attracted GBP3 billion in customer deposits, and made marked improvements to our customer experience," he added.
Looking ahead, the firm sees a net interest margin between 1.60% and 1.65% for financial 2020, with underlying operating costs of no more than GBP900 million and a CET1 ratio of around 13%. Longer-term targets were reaffirmed.
Shares were 14% higher on Thursday in London in early trade at a price of 162.85 pence each.
By George Collard; [email protected]
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