PPI claims overshadow Virgin Money makeover
David Duffy: surprised by scale of PPI requests
Shares in Virgin Money closed 19% higher despite suspending its dividend and confirming a bottom line loss of £194 million.
Chief executive David Duffy admitted he was “surprised” by the scale of claims for payment protection insurance in the final month before the deadline.
The former CYBG – owner of the Clydesdale and Yorkshire bank brands – said operating performance was ‘resilient’ in a challenging environment .
Underlying profit was 7% lower at £539m while the company reported a statutory loss after tax due to legacy conduct, restructuring & acquisition costs, including a PPI provision of £385m in the fourth quarter.
Virgin said the transformation strategy is on track for £200m in cost savings by 2022.
The dividend has been suspended for this year “in light of additional PPI provisions”. The board will reconsider dividends for next year.
It reported a robust capital ratio of 13.3% and strong growth in lending and deposits. Business lending grew 4.5% to £7.9bn. Personal lending was up 16.1% to £5bn. Mortgage lending grew 1.7% to £60.1bn, maintaining market share at 4%.
Significant progress has been made in the first year of the Virgin Money integration for all 6.6m customers. The first Virgin Money digital current account is ready to launch in December. The first three new concept Virgin Money stores will also open in December.
Chief executive David Duffy, who saw his pay package nearly double to £3.4m, said: “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. It is nonetheless frustrating to incur a further £385m in provisions in Q4 as we look to close out this legacy issue.”
Alasdair Ronald of Brewin Dolphin said: “Virgin Money would have hoped for better news on its maiden results as one company. The bank has taken a significant hit from additional PPI provisions and the cost of the merger, while pressure on UK domestic earners continues to take its toll.
“The suspension of the dividend and lack of clarity over 2020 will likely not be well received; although, the statutory loss is lower than some had feared. The decline in Virgin Money’s net interest margin is disappointing, but not surprising against previous guidance.
“There are undoubtedly further challenges ahead, with increasing competition from other challenger banks potentially eroding new business margins. However, the integration appears to be on track and significant costs savings should be achieved.”
AJ Bell analyst Russ Mould said: “Expectations were pitched fairly low heading into today’s announcement so the company’s solid if unspectacular performance across several metrics has been treated with a sigh of relief.
“While the lack of a dividend is disappointing, given that many people invest in banks purely for income, it may also be prudent given that Virgin Money faced a big last minute surge in PPI claims and it also incurred larger than expected restructuring costs during the period.”