Virgin Money collapses in annual loss of £ 168m after setting £ 500m aside to cover bad debts
Virgin Money suffered a full year loss after setting aside £ 501million to cover bad debts.
The challenger bank, which also suffered £ 292million in costs related to its acquisition of Clydesdale and Yorkshire Bank, reported a pre-tax loss of £ 168million for the 12 months ending in September.
Although chief executive David Duffy has said the pandemic has yet to affect its loan portfolio, the bank has spent £ 501million on loans it expects to deteriorate and has built its capital cushions above regulatory requirements at £ 950million.
Costs: Virgin Money has spent £ 501million on loans it expects to go wrong and built its capital cushions above regulatory requirements to £ 950million
Duffy added: “We are optimistic in the medium term but cautious in the interim given the very uncertain economic outlook. The optimism about the vaccine is there, but we have not taken it into account.
“The economic benefit of vaccines delivered and deployed – it’s unclear when and how big it will be.”
Virgin Money, whose main shareholder, with a 13% stake, is Richard Branson’s Virgin Group, is renaming all its branches Clydesdale and Yorkshire Bank under the brand Virgin Money.
He resumed job cuts and branch closures as he said he was doing better than expected disrupting the pandemic.
In 2018, when the takeover of Clydesdale and Yorkshire Bank was announced, Virgin announced it would cut 1,500 jobs, or around 16% of the workforce, and stuck to it yesterday.
It is also closing approximately 52 branches. The lender plans to steal business from the big traditional banks by becoming a digitally driven brand.
During the pandemic, it provided more than £ 1 billion in government-guaranteed emergency loans to its business customers.
This includes £ 809million in Bounce Back loans to 28,077 clients, £ 334million in slightly larger CBILS loans to 907 clients and £ 20million in CLBILS loans to three companies.
This is less than other “challengers” lenders, such as Starling digital bank.
Duffy said, “I have no concerns about the loans we have made. There is an environment in which we know there has been a lot of fraud, and what we’ve been very happy to do is lend to those clients that we have a relationship with and know.
The National Audit Office has estimated that £ 26 billion of the £ 42.2 billion distributed by all banks under Bounce Back, which is 100% taxpayer guaranteed, could be lost due to the fraud and bankruptcy of borrowers.
Virgin Money said it had also seen “very strong activity” in mortgage applications since the first foreclosure was lifted, with buyers taking advantage of the stamp duty holiday.
Interim CFO Enda Johnson said prices in the mortgage market, which were competitive as banks offered the lowest rates to attract customers, had become more “favorable” amid the rush.