Virgin Money warns of ‘headwinds’ from interest rate cuts

But it said it is braced for its net interest margin – a key performance measure for retail banks – to be lower over the second half ahead of expected interest rate cuts and ongoing competition in the sector.

It also said costs are being pushed higher by rising wage bills and wider inflation, with limited scope to offset these pressures because the group is putting some restructuring activity on hold due to its impending takeover.

Nationwide has made pledges over retaining branches as part of its acquisition, saying it would keep a branch in each location where the combined group is present, until at least the start of 2028.

Virgin Money has not announced any further branch cuts as a result this year, while it also held fire on previously-announced plans to cut staff numbers further.

The group reduced its full-time workforce by around 150 in its first quarter and had said in a trading update earlier this year that there would be more staff cuts.

Virgin Money also said fees related to the takeover will be “significantly” higher in the second half than in the first six months, adding to cost pressures.

Chief executive David Duffy said: “As we look out in to the second half, the group does expect downward pressure on net interest margin relative to the first half.

“We also anticipate cost pressures from inflation and investment in the second half, which will only be partially mitigated by the ongoing cost savings programme, where certain restructuring activities have now been deferred in light of the proposed acquisition by Nationwide.”

He added: “While we expect there to be headwinds through the second half of the year, we remain well placed to deliver growth in our target segments.”

The group’s half-year figures showed total customer lending edged 0.3 per cent higher to £72.7bn in the first half.

It is still expecting the Nationwide deal to complete in the final three months of 2024.

The Competition and Markets Authority (CMA) recently revealed it is investigating the takeover.

It has invited interested parties to give their views, setting a deadline of June 14 for responses.

Virgin Money was formerly the Clydesdale and Yorkshire Bank group CYBG and rebranded after a £1.6bn takeover of Sir Richard Branson’s banking group in 2018.

Nationwide is Britain’s biggest building society with 605 branches and 18,000 staff and claims to have the UK’s single largest network of branches.

Mr Duffy will stand down on completion of the deal, while Nationwide boss Debbie Crosbie will head up the enlarged group.

Speaking in March, Ms Crosbie said: “This acquisition strengthens Nationwide and means we can offer more value and broader services for our current and future members.

“More people will experience the benefits of mutual ownership and the customer-focused approach of a building society.”