Virgin Money UK PLC slides to loss after higher than expected impairments
“Although the vaccine news is a strong cause of hope for the future, the economic benefits are still some way off when considering the immediate reality of current restrictions and so have not yet been factored into our near-term forecasts,” boss David Duffy said
() tumbled to a loss for the past year as it took a “cautious and conservative” approach to the UK’s economic outlook.
The challenger bank reported a statutory loss after tax of £141mln for the year to end-September 2020 due to £501m of impairment charges for loans that may not be repaid, plus £292mln of exceptional items, including £139m of costs from the merger of CYBG and Virgin Money in August last year and £113mln of “accounting unwind” from the deal.
However, even underlying profit before tax of £124mln was down 77% on the previous year and 13% below the average analyst forecast due to higher than expected impairments.
The full-year charges were up from £274mln at the half-year stage.
“While we are yet to see any material impacts of the pandemic on the credit quality of our loan book, our results reflect a cautious and conservative approach to the coming period as we refine our assessment of the uncertain economic outlook and the impact of the second lockdown,” said chief executive David Duffy in the results statement.
“Although the vaccine news is a strong cause of hope for the future, the economic benefits are still some way off when considering the immediate reality of current restrictions and so have not yet been factored into our near-term forecasts.”
Virgin Money UK’s net interest margin (NIM) fell to 1.56% from 1.66% over the year, while its capital levels improved slightly, with the CET-1 ratio up to 13.4% from 13.3%.
For the new year, guidance was given for NIM to be “broadly flat” as non-interest income remain “subdued”, with underlying operating costs to fall slightly to below £875m.
Duffy said the group was “well underway” in rolling out a full suite of products and services across personal and business banking.
Broker Shore Capital said: “We are surprised by the size of the top-up given extensions to government support and recent positive vaccine news and suspect a negative read across to the rest of the sector.”
The shares fell 5% to 139.36p in early trading on Wednesday.
Read More: Virgin Money UK PLC slides to loss after higher than expected impairments