CYBG PLC (LON:CYBG) shares jumped on Wednesday after the new owner of Virgin Money improved its guidance for 2019 margins, lifted its cost synergy estimate for 2021 and posted an increase in total lending for the first quarter.
The group, which completed the acquisition of Virgin Money in October and also owns the Clydesdale and Yorkshire banks, said total lending rose 1.4% to £71.9bn in the quarter to December 31 with mortgage lending up 1.5% to £60bn and lending to small and medium enterprises (SMEs) up 1.2% to £7.6bn.
The net interest margin (NIM) – the difference between what banks earn from loans and pay for deposits – was 172 basis points (bps), lower than the full year of 2018, amid tough competition in the mortgage market.
For 2019, the company expects a NIM of 165-170bps, at the upper end of its previous guidance range.#
CYBG added that it remains on track to achieve its cost target of less than £950mln. It expects to deliver at least £150mln of cost synergies by the end of 2021 on the back of its Virgin Money merger, up from the £120mln previously announced.
"The group has made a good start to the year and we are making encouraging progress on the initial stages of the three-year Virgin Money integration programme,” said CYBG chief executive David Duffy.
“In a highly competitive environment, we have delivered ahead-of-market lending growth for our customers and improved our NIM guidance for 2019.”
CYBG to take advantage of RBS funding scheme
RBS, which agreed to the scheme as part of a condition of its £45.5bn government bailout in 2008, is set to provide up to £275mln to SMEs to switch to challenger institutions.
CYBG hopes to attract “a large proportion” of the 120,000 SME customers that RBS is required to switch.
In morning trading, shares in CYBG gained 11.5% to 199.45p.
Hold the champagne, says analyst
“Banking group CYBG has come out with figures that aren’t as bad as expected, hence why its share price has shot up, yet fundamentally there is nothing to celebrate about its performance," said Russ Mould, investment director of AJ Bell.
“The Clydesdale and Yorkshire Bank owner has been caught up in the mortgage industry price war which has been putting pressure on margins across the sector."
He said while CYBG has improved its margin guidance for 2019, a range of 1.65% to 1.70% is "hardly something to be proud of" and leaves it with barely any room for error if bad loans rise.