By Emma Rumney and Lawrence White
Shares in Britain’s CYBG fell 5%, as the mid-sized lender reported a first-half loss of £76m (€86.3m) and gave no update on its bid for Virgin Money.
The slide in CYBG’s stock will depress the value of its all-share bid for its rival mid-sized bank, announced last week, which it said would create one of Britain’s biggest lenders.
Shares in Virgin Money fell 4%, as investors assessed the impact of the reduced buying power of CYBG’s shares on the likelihood of the £1.6bn deal closing. CYBG’s disappointing set of first-half results highlighted the importance of the deal to its long-term fortunes, with analysts seeing the stronger Virgin Money brand as a key attraction for CYBG.
“This shows the strategic imperative for CYBG to deliver on a Virgin deal, because the problem they’ve got is revenue and what’s clear is that a Clydesdale or a Yorkshire bank brand doesn’t cut the mustard,” said Edward Firth, at Keefe, Bruyette and Woods. “Clearly, a Virgin brand across the whole group could revolutionise the outlook, but they’re not paying enough,” he said.
CYBG, owner of Clydesdale and Yorkshire Bank, made its London market debut in 2016, after it was spun off by National Australia Bank. It is run by David Duffy, the former AIB boss.
Its bid for Virgin Money comes as Britain’s mid-sized banks fight the competitive squeeze from bigger rivals that have more to spend on technology, and from nimbler digital-only banks that have lower costs.
CYBG’s loss stemmed from a previously announced, £350m charge for the misselling of payment protection insurance (PPI), which Duffy described as disappointing.
CYBG reported the PPI hit in March, after a media campaign by Britain’s financial watchdog boosted claims by customers against banks for Britain’s costliest-ever consumer scandal, in which people were mis-sold worthless insurance products.
Duffy said the “strong capital position” of the group meant that CYBG could absorb this hit without changing its future strategy or aspirations. The bank reported a Tier I capital ratio of 11.3%, below the 12% to 13% range to which it aspires. Analysts expect the bank will draw on capital to fund some of its bid for Virgin Money, with CYBG expected to benefit from a capital windfall, due to an expected change to risk models. CYBG has until June 4 to either to make a firm offer or walk away from its bid for Virgin Money