Investors Abandon NAB Spin-Off CYBG

By Glenn Dyer | More Articles by Glenn Dyer

Shares in UK bank, CYBG, the spin-off from the National Australia Bank were hammered yesterday after producing an unimpressive set of figures for the year to September 30 and nearly £200 million more in losses and provisions to cover the continuing costs of an insurance selling scandal and “other issues”.

On top of that, the bank’s commentary left an impression of a clouded outlook for the current 2018-19 financial year.

The shares hit an all-time low of $3.54 as they plunged 20% on the ASX yesterday in reaction to the 2017-18 results released on Tuesday night in London and in Australia yesterday.

That was after a near 17% slide in the UK on Tuesday night as UK investors gave the result the thumbs down.

The shares eventually ended down nearly 20% at $3.59 on the ASX.

While CYBG’s underlying profit was up 13% to £331 million, the bank reported a statutory loss thanks to the cost of write-downs and extra payments in the huge UK insurance miss-selling scandal.

The bank’s statutory earnings actually showed a loss of £145 million mainly due to £396 million of charges relating to legacy conduct largely from the Payment Protection Insurance miss-selling scandal which continued to bedevil the company and the rest of the UK banking and finance sector with well over £30 billion in fines, losses and make good payments to millions of customers.

That statutory loss was up from the £76 million for the first half to the end of March, indicating the costs of the miss-selling lingered into the second half when more losses were unveiled.

The Glasgow-based company behind the NAB’s old Clydesdale and Yorkshire Banks brands a pre-tax loss of £164 million for the 12 months to September 30 because of £396 million of legacy conduct costs.

Some of the money had already been set aside in the first half, but on Tuesday CYBG took an additional £150 million charge to cover more PPI compensation claims, plus £44 million to deal with other “less significant” conduct issues.

CYBG didn’t help sentiment when it cautioned some of its key markets may be “subdued” into 2019 as it pointed to the impact of the continuing Brexit wrangle. UK analysts were particularly concerned by worse than expected forecasts for future profit margins.

Some good points from the report – cutting costs by 6% to £635 million, reporting a 4.2% rise in deposits to £28.9 billion. a 4.5% rise in home loans to £24.5 billion and a 5.6% lift in core lending to small and medium enterprises to £7.2 billion – counted for naught against the news of more losses on the PPI scandal and other issues.

No wonder the impressive list of pluses didn’t wash with investors even though the dividend was boosted to 3.1p a share from 1p the year before.

The bank’s net interest margin (NIM) fell from 2.27% to 2.17% during the year, a sign its costs remain under pressure, despite the reduction reported in the annual report. In fact, the bank said the NIM will fall to a range of 1.6% to 1.7% after Virgin Money next year.

In its release, the bank tried to focus investor attention on its takeover of Virgin Money from October and how wonderful that would be.

CYBG CEO, David Duffy said: “It has been a landmark year for CYBG, delivering continued 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.

“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.”

But it remains all about the costs of the PPI miss-selling and the other ‘issues’. No wonder the shares were abandoned yesterday.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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