Virgin Money (VMUK.L) fell to a loss last year and has suspended its dividend, after a big surge in PPI claims dented profits.
However, shares in the bank leapt 25% higher as the PPI provisions came in lower than the market expected.
The lender, which was formerly known as Clydesdale and Yorkshire Banking Group (CYBG), said Thursday it lost £194m in the year to 30 September 2019. Virgin Money blamed an “unprecedented” surge in PPI claims around the 29 August deadline for claims, which forced it to set aside £385m in the fourth quarter to cover compensation.
“Our statutory result was significantly affected by additional PPI provisions, driven by the unprecedented surge in PPI information requests in August, along with anticipated Virgin Money acquisition-related costs,” said chief executive David Duffy.
Virgin Money said it was suspending its dividend as a result of the heavy PPI charge and would consider whether to reinstate a dividend next year “in line with normal practice.”
READ MORE: Lloyds latest to be surprised by PPI deadline with £1.8bn claims surge
While the £385m provision is big, it is lower than previously guided by the group. CYBG, as it was known then, warned it would have to set aside £450m to cover PPI deadline claims in September.
“Expectations were pitched fairly low heading into today’s announcement so the company’s solid if unspectacular performance across several metrics has been treated with a sigh of relief,” said Russ Mould, investment director at AJ Bell.
Setting aside PPI, Virgin Money performed well. Net interest margin was within guidance at 1.6%, deposits rose by 4.6% to £3bn, and costs reduced by 6% to £942m.
Jefferies analysts Joseph Dickerson and Aqil Taiyeb said Virgin Money was “ticking all the boxes” with its results.
Duffy said: “In the first year of our newly combined business, we have delivered a good operating performance in challenging conditions and made great progress on the integration and rebrand to Virgin Money.”
READ MORE: PPI claims deadline costs RBS £900m
CYBG acquired Virgin Money in October last year, rebranding the entire group under the acquired brand earlier this month.
“We achieved all the required approvals in 2019 to enable us to operate as one bank, with one brand, and are ready to deliver our strategy to disrupt the status quo with brilliant customer service and unique Virgin Money products,” Duffy said.
Duffy said Virgin Money would soon launch a digital-only current account, new ‘concept’ stores, and roll out a loyalty and rewards programme for customers in 2020.
READ MORE: Barclays takes £1.6bn hit as banks surprised by PPI deadline surge
