Synergies lifted to £150m

Clydesdale Bank owner CYBG raises its savings target

David Duffy

David Duffy: good start to the year


CYBG, owner of Clydesdale Bank and Virgin Money, has raised its cost savings target from the merger to £150 million by the end of 2021 from £120m previously.

The company said trading in the three months to 31 December was in line with the board’s expectations and that good progress has been made with the Virgin Money integration programme.

First quarter lending grew 1.4% to £71.9bn, including mortgage growth of 1.5% to £60bn and SME growth of 1.2% to £7.6bn.

The net interest margin (NIM) is lower than FY18 due to sustained pricing pressure in the UK mortgage market.

David Duffy, chief executive, said: “The group has made a good start to the year and we are making encouraging progress on the initial stages of the three-year Virgin Money integration programme.

“In a highly competitive environment, we have delivered ahead-of-market lending growth for our customers and improved our NIM guidance for 2019. We have also made good progress on cost reductions and have now increased our integration synergy target to £150m.

“I am particularly encouraged by our performance in SME. We are well prepared for the start of the RBS Incentivised Switching Scheme and we hope to attract a large proportion of the 120,000 SME customers that RBS are required to switch.

“We have also recently submitted our application for a grant from the RBS Capability and Innovation Fund, where we believe we offer the strongest case for delivering a genuine boost to competition in the SME market.

Market conditions remain uncertain while we await the outcome of the Brexit negotiations, but we remain focussed on supporting our customers and delivering against the factors within our control.”

The Group incurred £161m of exceptional charges in Q1 including £48m of costs incurred by Virgin Money in relation to the transaction, £8m of acquisition associated stamp duty, £77m in relation to the closure of the VMDB project (including a £70m capital-neutral asset write-off) and £17m of initial integration spend. During the remainder of FY19 the Group expects to incur a further c.£100m of integration, rebranding, and restructuring costs.

PPI complaint variables are all tracking as expected with complaint volumes in the first quarter of c.1,800 per week, in line with the provision assumption. The group said it remains comfortable with its current level of PPI provisioning.

John Moore, senior investment manager at Brewin Dolphin Scotland, said: “There is some much hoped-for good news for CYBG investors in this latest update – lending growth is up 1.4%, with mortgage and SME lending rising 1.5% and 1.2% respectively.

“Meanwhile, the merger with Virgin Money is expected to deliver greater cost savings than previously anticipated, at £150 million.

“One area of concern will be the bank’s net interest margin, which came under pressure in a highly-competitive mortgage market.

“CYBG’s share price has suffered in recent months, dropping from 352.8p in August 2018 to 175.3p in February 2019 and, of course, with uncertain political and market conditions there could be further volatility. However, these results may also offer a support base from a fundamentals perspective.”

Russ Mould, investment director at AJ Bell, said the figures “aren’t as bad as expected, hence why its share price has shot up, yet fundamentally there is nothing to celebrate about its performance.

“The Clydesdale and Yorkshire Bank owner has been caught up in the mortgage industry price war which has been putting pressure on margins across the sector.

“Net interest margins are a key benchmark for banks as they compare the rates lenders charge for loans against their own funding costs.

“While CYBG has improved its margin guidance for 2019, a range of 1.65% to 1.7% is hardly something to be proud of. It leaves it with barely any room for error if bad loans go up.”

RBS shareholders urged to back shares plan

RBS will ask shareholders to allow it to make off-market purchases of shares from the Treasury as part of moves towards returning the bank fully to private ownership.

A general meeting will be held today at its Gogarburn head office.

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