£396m provision pushes Clydesdale owner CYBG into red

CONDUCT: Costs include further £150m for PPI claims

Clydesdale owner CYBG has swung to a full-year loss after it was forced to take an extra £150 million charge linked to the mis-selling of payment protection insurance.

The group, which also owns Yorkshire Bank, booked a £164m pre-tax loss in the year to September 30, compared with a £268m profit in 2017.

It was stung by £396m of legacy conduct costs, the bulk of which were linked to PPI claims.

It reflects higher-than-predicted complaints volumes following a Financial Conduct Authority campaign aimed at encouraging people to come forward before the August 2019 deadline for final claims.

CYBG said that, while weekly complaint volumes have been falling since the end of July, it considers it “prudent” to take a further £150m increase in provisions as it estimates 83,000 future claims.

On an underlying basis, profit before tax was up 13% to £331m and net interest income rose 1% to £851m.

Shares in CYBG – which revealed plans in the summer to build a major new corporate headquarters in Glasgow – plunged by more than 8% in early trading exchanges in London as investors digested the figures.

Chief executive David Duffy also used the annual update to warn over Brexit uncertainty. “Clearly Brexit negotiations mean the external political and macroeconomic environment remains inherently uncertain.

“We have planned for a period of uncertainty, but it is impossible to ignore the lower levels of business confidence, especially for SMEs, while the final specific outcome of negotiations remains unclear. CYBG has a bright future with a unique combination of growth opportunities.”

Earlier this year, CYBG completed the £1.7 billion takeover of Virgin Money, marking one of the first major banking deals since the financial crisis.

CYBG said the tie-up created a “genuine national competitor to the banking status quo” and gave it a “stronger competitive edge.”

The combined group is expected to make annual cost savings of around £120m by the end of September 2021.

With more than six million customers, the bank will also hold £70bn in customer loans and around £58bn in mortgages.

Mr Duffy added: “It has been a landmark year for CYBG, continuing to deliver ahead of market growth and meeting our underlying financial targets in a highly competitive market, while also completing the transformational Virgin Money acquisition in October 2018 following overwhelming shareholder support.

“In a competitive market, we have delivered an increase in underlying profits, returns and capital generation – all of which means we are delighted to recommend an increase to last year’s inaugural CYBG dividend, payable to all shareholders.”

Alasdair Ronald, senior investment manager at Brewin Dolphin Scotland, said: “The Virgin Money acquisition should give CYBG greater scale and with that comes the ability to reduce costs.

The combination of an operationallysound business with a strong brand should make the “new” Virgin Money greater than the sum of its parts.”

Shares in CYBG closed trading down 42.00p at 206.40p last night.

An impression of CYBG’s planned new corporate headquarters in Glasgow.

CYBG chief executive David Duffy.