Virgin Money UK leaps 24% after saying worst of insurance scandal is over
Company suspends dividend and posts lower profit
Bengaluru — Shares in Virgin Money UK leapt as much as 24% on Thursday after the British bank said it believed the worst of an industrywide insurance scandal was behind it.
That helped to overshadow a drop in annual profit and the company’s decision to suspend its dividend payout.
The owner of Clydesdale and Yorkshire banks said it had set aside £385m in the past quarter to cover costs related the mis-selling of payment protection insurance (PPI) — a scandal that has cost the industry billions and continues to unsettle investors worried about more charges.
That was within the £300m-£450m range Virgin Money UK forecast in September, when it reported an “unprecedented volume” of claims for compensation ahead of an August deadline.
“We are going to be processing claims from now through to the end of next summer, but we think we have got a pretty good handle on the costs,” CFO Ian Smith said.
“I can’t say that there’s not going to be any more provisions, but I am very confident the risk of a scale charge in relation to PPI is completely behind us.”
Virgin Money UK, formerly known as CYBG, became Britain’s sixth-biggest lender after it bought Virgin Money in 2019. It is betting on the high profile brand of Richard Branson’s Virgin empire and growth in business banking to challenge bigger rivals such as Lloyds, RBS and Barclays.
In its first full results as the merged entity, the bank said underlying pretax profit dropped 7% to £539m in the year ended September 30, below analysts’ average forecast of £544m.
Virgin Money UK shares were up 19.8% at 171.25p, topping the UK midcap index and on course to add about £500m to the company’s market value. That was despite the lender cancelling its dividend.
“The board, incorporating feedback from our major shareholders, believes this is the right short-term action to enable us to deliver on our longer-term strategy and targets,” the company said.
JP Morgan called the move “sensible”, adding it helped the bank to report a common equity tier one capital ratio — a key measure of financial strength — of 13.3%, higher than analysts’ forecast of 13%.