Merged bank unveils first figures
CYBG falls to after-tax loss following £352m PPI hit
David Duffy: ‘disappointing’
Shares in Clydesdale Bank and Virgin Money owner CYBG slid 17% after it announced a loss after tax of £145 million as a result of legacy mis-selling issues.
The Glasgow-based bank said it had taken a £352m hit for PPI payments and a further £44m for other legacy conduct issues.
Underlying profit before tax is up 13% year-on-year to £331m. The bank, which completed its merger last month, is recommending an increased final dividend of 3.1p per share.
Shares fell by 16.9% to end the day at 206.4p.
David Duffy, chief executive, said: “While the additional PPI provision charge required in 2018 is disappointing, the group’s strong capital position means we have been able to absorb this without any impact on our strategy and future ambitions.”
He added: “It has been a landmark year for CYBG, continuing to deliver ahead of market growth and meeting our underlying financial targets in a highly competitive market, while also completing the transformational Virgin Money acquisition in October 2018 following overwhelming shareholder support.
“In a competitive market, we have delivered an increase in underlying profits, returns and capital generation – all of which means we are delighted to recommend an increase to last year’s inaugural CYBG dividend, payable to all shareholders.
“Clearly Brexit negotiations mean the external political and macro economic environment remains inherently uncertain. We have planned for a period of uncertainty, but it is impossible to ignore the lower levels of business confidence, especially for SMEs, while the final specific outcome of negotiations remains unclear.
“CYBG has a bright future with a unique combination of growth opportunities. We will participate strongly in the RBS alternative remedies schemes, have a stronger competitive edge as the first IRB accredited bank since the financial crisis, can fully leverage our iB platform in the new Open Banking landscape, and, of course, our combination with Virgin Money creates a genuine national competitor to the banking status quo.”
The bottom line loss compares to a profit of £182m last year when legacy costs were £58m. Following the acquisition of Virgin Money on 15 October the group said it begins the current financial year strongly capitalised and well funded with a bigger, broader business that is well prepared for the year ahead.
The “other conduct issues” did not, as first thought, relate to the legal action being taken by RGL Management which is representing small firms who claim they were mis-sold tailored business loans. It has hired advisory group allSquare to help its case.
RG issued a statement noting that CYBG had “failed” to mention the action, but its advisers said the campaigners will continue with the quest.
James Hayward, CEO of RGL Management, said: “I would have thought that a multi-million pound action involving allegations of fraud, which is growing in terms of claimant numbers and total quantum at an accelerating rate due in no small way to the involvement of allSquare helping to bring hundreds of new claims to the action, would have merited disclosure in the company’s reported results.”
Daniel Hall, managing director of allSquare, added: “CYBG has today shown that it continues to disregard its history of selling tailored business loans, which for many SME owners has led to untold financial strife. The rate at which we continue to process inquiries and the growing size of our claims book, which is now in the hundreds of millions, should convince Clydesdale that this is not a problem which will go away.”
Alasdair Ronald, senior investment manager at Brewin Dolphin Scotland, said: “While the obvious headline is CYBG’s £145 million loss – largely attributable to PPI provision and other legacy issues – this was a strong set of results for the bank.
“Underlying profit before tax was up 13% year-on-year, underlying costs were down 6%, and shareholders will benefit from an increased dividend of 3.1p per share.
“CYBG’s short-term prospects will inevitably be impacted by the uncertainties surrounding Brexit and the wider economic outlook, which disproportionately weigh on SME confidence; but the longer-term picture looks positive.
“The Virgin Money acquisition should give CYBG greater scale and with that comes the ability to reduce costs. The combination of an operationally-sound business with a strong brand should make the ‘new’ Virgin Money greater than the sum of its parts.”