CYBG PLC (LON:CYBG), the owner of Clydesdale Bank and Yorkshire Bank, swung to a loss in the first half after setting aside an extra provision to cover payment protection insurance claims.
The bank posted a pre-tax loss of £95mln for the first six month to March 31, compared to a £46mln profit the previous year.
Shares fell 4.6% to 308p in morning trading.
Last month CYBG said it would take a £202mln pre-tax charge in its first half results as it put aside a further £350mln to cover claims stemming from the PPI mis-selling scandal.
READ: CYBG reports PPI issues will cost an extra £350mln
The extra provision comes ahead of the Financial Conduct Authority’s August 2019 deadline for complaints.
Excluding off-one costs, CYBG’s underlying profits gained 28% to £158mln.
Margins come under pressure
Total operating income edged up 1% to £503mln as growth in net interest income offset a decline in non-interest income.
The net interest margin (NIM) – the difference between the interest received from loans and paid on deposits – fell 8 basis points (bps) to 2.18% despite growth in deposits, mortgages and business banking over the period.
For fiscal year 2018, the lender expects NIM of 220bps, mid-single digit growth in loans and improved underlying costs of less than £640mln.
CYBG's bid for Virgin Money
The results come after CYBG last week revealed that it has approached Virgin Money with a proposed £1.6bn takeover bid.
Under the proposed deal, Virgin Money would own about 36.5% of the combined company. Virgin Money shareholders would receive 1.13 new CYBG shares for each Virgin Money share.
CYBG said the merger would create Britain’s leading ‘challenger’ bank, with six million personal and business customers.
Many analysts think CYBG may need to raise its offer to secure Virgin Money, founded and partly owned by Richard Branson.
The lender provided no further remarks on the proposed deal in its first half results.