Virgin Money’s caution on property market overshadows profits

THE boss of Virgin Money hit back at the market reaction to the FTSE 250 company’s first-half results yesterday as shares in the group tumbled after it warned of “areas of weakness” in the UK housing market.

The challenger bank said that “in the near term there may be some areas of weakness to be navigated” across Britain’s housing sector in its results yesterday, sending shares down 8.8pc to 279.6p even though Virgin Money reported a surge in profits. Speaking to The Daily Telegraph after the results were published, Jayne-anne Gadhia, the firm’s chief executive, said the investor reaction was “overblown” and she was confident the housing market would remain flat on last year.

“Today I’m faced with this peculiar situation – [it’s] the best results we’ve had ever, but the market has started to look for negatives,” she said, insisting that the group’s capital ratio was also where it should be. “What we’re trying to say is we’re experiencing a strong mortgage market. From our perspec- tive, the housing market is robust and resilient.

“There’s bound to be some weakness ahead, some house prices in big cities will be affected. But, to be abundantly clear, that’s not our experience at the moment.”

The outlook statement overshad- owed the group’s rise in underlying pre-tax profits of 26pc, to £128.6m, for the six months to June 30 compared to the same period last year, driven by growth in its mortgage and credit card businesses. The latter division saw balances rise 13pc compared to the end of last year to £2.8bn, with the group closing in on its target of £3bn by the end of this year. Meanwhile, despite its warning on a slowdown in the housing sector, its mortgage balances rose 7pc from the end of last year, to £31.8bn.

The bank’s core capital ratio was 13.8pc, 150 basis points below the level a year ago. “We have an internal minimum of 12pc that we’ve always said and that’s our planned position,” Ms Gadhia noted.

Investors reacted to Virgin Money’s results a day after the Bank of England warned about the rise in consumer debt, with Alex Brazier, the Bank’s executive director for financial stability, indicating that lenders “may be dicing with the spiral of complacency” over debt.

Virgin Money, which is partly owned by Sir Richard Branson, also said in its results that it had signed a deal to offer some of its services to customers of Virgin Atlantic.

In a separate statement, it said it had started its hunt for a new chairman. The former Lloyds director Glen Moreno, its current chairman, who turned 74 this week, plans to retire next year and return to the US.