Virgin Money shares fall 8% despite profit, divi news

Shares of Virgin Money, the Glasgow-headquartered banking group formerly known as CYBG, fell 8% on Thursday despite the bank reporting that it would return to full-year profit and reinstate a dividend.

In a trading update, Virgin Money said it expects to report pre-tax profit of £417 million for the year to September 30 in unaudited figures, compared to a £168 million loss the previous year.

The bank also said it is moving faster into digital banking services — but warned investors it will have to spend more to achieve its plans.

Virgin Money said it aimed to cut £175 million from its costs over the next three years — but said restructuring costs over the period would reach £275 million, around double what banking analysts had expected.

“We think the market will focus on the significantly higher opex and restructuring costs guidance (in spite of the longer-term cost targets) and that the stock will experience selling pressure this morning,” banking analyst John Cronin at Goodbody wrote in a note to clients.

Virgin Money said its net interest margin — a key measure of a bank’s underlying profitability — improved 6 basis points to 1.62%.

“Given the significant improvement in financial performance and the robust capital position, the board intends to recommend a 1p dividend on finalisation of the annual report and accounts and subject to shareholder approval,” said Virgin Money.

“It is pleasing to be in a position to resume capital returns, although we await the outcome of the SST and clarity on the broader impairment backdrop before giving further guidance on our capital and dividend framework.”

Virgin Money CEO David Duffy said: “Following our decision to accelerate the next stage of our Digital First strategy, we are today announcing our medium-term growth, investment and efficiency targets, as well as details on FY21 performance.

“We performed very strongly in FY21, with an expected return to statutory profit before tax underpinned by significant underlying profit growth.

“We increased our net interest margin, reduced costs, improved impairments and delivered a strong capital progression which enabled the proposed reinstatement of a dividend.

“Our accelerated digital strategy will result in new propositions, including a digital wallet, and will deliver efficiency and agility improvements.

“The combination of these factors will help us to become a growth-oriented digital bank that offers a best-in-class experience and unique loyalty rewards for customers, and delivers double-digit returns for shareholders.”

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Dalriada Media LLC sites are edited by veteran news journalist Mark McSherry, a former staff editor and reporter with Reuters, Bloomberg and major newspapers including the South China Morning Post, London's Sunday Times and The Scotsman. McSherry's journalism has also appeared in The Washington Post, The Guardian, The Independent, The New York Times, London's Evening Standard and Forbes. McSherry is also a professor of journalism and communication arts in universities and colleges in New York City. Scottish-born McSherry has an MBA from the University of Edinburgh and a Certificate in Global Affairs from New York University.