CYBG PLC (LON:CYBG), the new owner of Virgin Money, swung to a full-year loss as it took a £352mln hit related to payment protection insurance (PPI) misselling claims.
The group – which also owns the Clydesdale Bank and Yorkshire Bank – reported a loss after tax of £145mln for the year to September 30, compared to a profit of £182mln last year, as legacy conduct costs swelled to £396mln from £58mln, mainly due to extra PPI provisions.
Underlying profit before tax, which excludes exceptional items, rose 13% to £331mln as the bank cost underlying costs by 6% to 3635mln.
Total operating income was broadly unchanged at £1.01bn as growth in net interest income offset a decline in non-interest income.
Competitive mortgages market drags NIM lower
The net interest margin – the difference between interest earned on loans and the deposits paid out on savings accounts – declined 10 basis points (bps) to 2.17%, in line with CYBG's guidance of 220bps, amid tough competition in mortgage lending.
Customer deposits increased 4.2% to £28.9bn while loans grew 4.1% to £33.3bn.
The common equity tier 1 capital ratio, a measure of balance sheet strength, fell 182bps to 10.5% as a result of conduct provisions.
CYBG hikes dividend but cautious about Brexit uncertainty
CYBG, which completed the £1.7bn acquisition of Virgin Money in October, increased its ordinary dividend to 3.1p each from 1.0p last year.
"It has been a landmark year for CYBG, continuing to deliver ahead of market growth and meeting our underlying financial targets in a highly competitive market, while also completing the transformational Virgin Money acquisition in October 2018 following overwhelming shareholder support,” said chief executive David Duffy.
For the 2019 fiscal year, CYBG expects NIM to fall to 160-170bps and underlying costs of less than £950mln.
It has applied for the Royal Bank of Scotland Group PLC (LON:RBS) funding scheme for challenger banks to lend to small and medium-sized enterprises (SMEs). RBS agreed to the scheme as part of a condition of its £45.5bn government bailout in 2008 during the height of the financial crisis.
Duffy acknowledged that Brexit negotiations “mean the external political and macroeconomic environment remains inherently uncertain”.
“We have planned for a period of uncertainty, but it is impossible to ignore the lower levels of business confidence, especially for SMEs, while the final specific outcome of negotiations remains unclear,” he said.
Shares dropped 4.7% to 236.6p in morning trading.
COO leaves to join TSB
Ahead of its results, CYBG announced on Monday that chief operations officer Debbie Crosbie was leaving the company to become chief executive of TSB.
READ: Virgin Money owner CYBG operations chief Debbie Crosbie becomes TSB CEO
Crosbie will replace Paul Pester, who resigned as chief executive of TSB in September after the bank's botched IT systems upgrade in April when almost two million customers lost access to online banking services.