Thursday 28 November 2019 9:21 am

Virgin Money cancels dividend after £385m PPI hit but shares jump on solid growth

Virgin Money swung to a £194m loss and suspended its dividend in its latest full-year results, blaming payment protection insurance (PPI) charges and the costs of its £1.7bn merger with Clydesdale and Yorkshire Bank Group (CYBG).

The figures

The bank fell to a £194m loss before tax after paying out £385m to settle its part in the long-running PPI scandal.

It also paid £189m in costs for the May acquisition, which saw CYBG banks rebranded as Virgin Money.

Underlying profit also fell seven per cent year on year to £539m for the 12 months to the end of September.

Investors booked a basic loss per share of 17.9p, narrowed slightly from 19.7p this time last year.

It also cancelled its dividend in light of the extra PPI costs.

Why it’s interesting

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.”

However, he pointed out that the loss before tax is better than expected.

“The decline in Virgin Money’s net interest margin is disappointing, but not surprising against previous guidance,” Ronald added. “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.”

Virgin Money’s share price soared 23 per cent to 176.3p in early trading despite the PPI hit.

Virgin Money beat market growth in both its business and personal segments, posting growth of 4.5 per cent and 16 per cent respectively, news investors welcomed.

“Considering the uncertainty at the start of the year regarding the group’s new integration into Virgin Money, these results do suggest good momentum moving forward and sets a relatively solid foundation for growth,” The Share Centre’s investment research analyst Joe Healey said.

“As PPI and restructuring charges settle, the group’s robust capital position should allow the group to continue pushing ahead with its strategy exploiting any future opportunities in a bid to enhance shareholder value.”

What Virgin Money said

CEO David Duffy said:

In the first year of our newly combined business, we have delivered a good operating performance in challenging conditions and made great progress on the integration and rebrand to Virgin Money.

Our statutory result was significantly affected by additional PPI provisions, driven by the unprecedented surge in PPI information requests in August, along with anticipated Virgin Money acquisition-related costs.

Our customer divisions have performed well – we have delivered a further c.£2bn in net lending to support UK SMEs and consumers, attracted c.£3bn in customer deposits, and made marked improvements to our customer experience.

We achieved all the required approvals in 2019 to enable us to operate as one bank, with one brand, and are ready to deliver our strategy to disrupt the status quo with brilliant customer service and unique Virgin Money products. In December we are launching Virgin Money’s first digital personal current account and three new Virgin Money concept stores. A unique loyalty and rewards programme for customers featuring a number of Virgin Group companies will follow in 2020, along with the launch of our brand new Virgin Money business account.

More to follow.