Shares in Virgin Money have fallen 7.3 per cent this afternoon after the digital bank revised its strategy to include an expensive cost-cutting exercise.
In an unscheduled trading update the lender unveiled plans to “accelerate” its switch to digital banking services, but warned of the cost-cutting exercise this would incur over the next three years to fiscal year 2024.
Virgin Money said it plans to cut £175m from its costs, but achieving this would cost the lender £275m – double that expected by analysts. The move will involve cutting its number of branches and offices, in favour of remote working.
The challenger bank already announced plans to shut down almost one in five of its branches – 31 out of 162 – in September.
The company, which in September outlined a new digital growth strategy, also set a dividend of 1p a share for the year and said it expected underlying profit before tax to rise to £801m for 2021 thanks to “strong financial momentum”.
The bank’s profit before tax for the year is expected to be £417m while return on tangible equity is 10.2 per cent compared to a loss of 6.2 per cent last year, according to a trading update published today.
Virgin Money said cost-cutting and investment in digital services would help the bank hit double-digit returns on tangible equity by 2024.
The digital bank, born out of a merger between CYBG and Virgin Money, saw the strongest growth in for current account new customer sales, which jumped by 95 per cent compared to 2020.
Business lending fell five per cent at £8.5bn as business activity was “subdued” while personal lending, on the other hand, grew four per cent during the recovery from lockdown restrictions.
“As a result of Covid, the pace of digital change has accelerated with multi-year developments now achieved in just one year,” chief executive officer David Duffy said.
“Competition is increasing and customer expectations are rising rapidly,” he added.