Surge in PPI claims dents Virgin Money results
This was despite an “unprecedented surge” in PPI information requests in August.
The bank announced a statutory loss after tax of £194m due to legacy conduct costs plus restructuring and acquisition costs, but this was better than the market had expected.
The group’s shares closed up 19 per cent at 170p.
This was despite the bank scrapping its dividend payout after a £385m hit for payment protection insurance (PPI) pushed it deeper into the red.
Statutory pre-tax losses widened to £232m for the year to September 30 from £164m the previous year after the hefty PPI charge. The Yorkshire Bank and Clydesdale owner, which changed its name from CYBG in October following last year’s £1.7bn takeover of Virgin Money, said its bottom line was also hit by restructuring costs after the deal.
On an underlying basis and with the PPI bill stripped out, pre-tax profits fell 7 per cent to £539m.
Virgin Money UK chief executive David Duffy said it was frustrating to book the extra PPI bill, which took its total for the year to £415m.
“We, like the rest of the industry, were surprised by the scale of the PPI information requests and complaints during August,” he said.
“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.”
Mr Duffy said the group has a clear path to return to statutory profit next year once the PPI charges are behind it, despite tough retail banking conditions.
Mortgage lending rose 1.7 per cent to £60bn and customer deposits increased 5 per cent to £64bn.
The group is now focusing on higher growth areas such as business and personal lending, which rose 16 per cent and 5 per cent respectively over the year.
Virgin Money is to open the first wave of its new branches over the coming months as it phases out the Yorkshire Bank and Clydesdale brands. It is also launching a digital current account, three new concept stores and a loyalty programme offering incentives across the wider Virgin Group.
Around 1,500 job losses were announced after the Virgin Money deal, when it said that around 16 per cent of the combined workforce would go.
Analyst Gary Greenwood at Shore Capital said: “While the dividend suspension is disappointing, we do think this will prove temporary and expects dividend payments to resume in 2020 assuming the group moves back into statutory profit. As such, we retain our ‘buy’ stance.”
Russ Mould, investment director at AJ Bell, added: “Expectations were pitched fairly low heading into the 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 many people invest in banks purely for income, it may also be prudent given Virgin Money faced a big last-minute surge in PPI claims and it also incurred larger-than-expected restructuring costs.”