SHARES in Clydesdale Bank owner CYBG plunged nearly
17 per cent after the institution warned over Brexit and made additional provision for payment protection insurance (PPI) mis-selling, wiping £600 million from its stock market worth.
CYBG chief executive David Duffy branded the £150m
provision, which took to £352m the total set aside for PPI by
the bank for the year ended
September 30, as “disappointing”. It led the bank to report a loss of £164m, compared with a profit of £268m last year.
The PPI provision was announced as Mr Duffy revealed that the bank has “planned for a period of uncertainty” because of Brexit, declaring that it is “impossible to ignore the lower levels of business confidence, especially for SMEs, while the specific outcome of negotiations remains unclear.”
The share prices of leading UK banks, including Royal Bank of Scotland and Lloyds Banking Group, fell sharply last Thursday amid the political tumult centred on Prime Minister Theresa May’s EU withdrawal deal, underlining the sensitivity of UK banking stocks to the Brexit process.
CYBG derives all of its income from retail and business banking operations in the UK.
Mr Duffy said: “Clearly Brexit negotiations mean the external political and macroeconomic
environment remains inherently uncertain.”
CYBG reported a 13% rise in underlying profits to £331m during what Mr Duffy said had been a “landmark” year, with the bank now in the early stages of integrating Virgin Money after getting the all-clear for the merger.
The £1.7 billion, all-share deal, which was approved by shareholders in September, will ultimately lead to the Clydesdale and
Yorkshire Bank names disappearing from UK high streets, to be replaced by the Virgin Money name.
Asked why the bank had made further provision for PPI, Fergus Murphy, CYBG’s group customer value director, said the institution “felt it prudent” to account now for the 83,000 walk-in complaints it now expects to receive between now and the claims deadline of August 2019.
While TV advertising from the Financial Conduct Authority reminding consumers of the PPI claim deadline has led to a surge
in claims, Mr Murphy said he expects the situation to “normalise” now that a fee cap has been put in place for PPI claims companies and there is a ban on cold calling.
Noting that the bank’s capital strength meant it was able to absorb the extra provision for PPI – its capital ratio dipped to 10.5% at September from 12.4% at the same stage last year – he declared: “We believe we have been prudent for the future.”
Mr Duffy, who on Monday saw chief operating officer Debbie Crosbie announce her departure for the top job at TSB, said that the uncertain economic outlook has led to a slowing of consumer spending and businesses holding back on investment. He added: “This has reduced demand for lending, although credit conditions remain benign.
“In the mortgage market, economic uncertainty has reduced customer demand while competition has remained intense, resulting in a challenging pricing environment.”
Mr Murphy noted that the bank had increased its mortgage
lending by 4.5% to £24.5bn, compared with general market growth of 2.5% in that period.
He acknowledged that house prices have become “softer” in
the south-east of England but contrasted this with more “steady” conditions in Scotland, where the market is underpinned by strong demand for more housing.
Meanwhile, Mr Murphy said there has been an “entirely
positive” response from customers over the plan to phase out the Clydesdale Bank name.
The Herald has received feedback from customers who are unhappy about the intention to replace the Clydesdale brand with Virgin Money. Mr Murphy said the bank is “sympathetic” to the Clydesdale name and what it “stands for” among customers, but said the Virgin name would allow it to improve market penetration.
He said it would be “at least one year” before customers see any change to branch names.
In other matters, Mr Murphy said the bank “hasn’t received any claim” from RGL Management, the company which has pledged to take action against CYBG and National Australia Bank, its former owner, over the historic sale of tailored business loans.
The bank said it would contest the claim in the “strongest terms possible”.
It said: “We are engaged in correspondence with RGL’s
solicitors in connection with the historical sale of fixed rate
tailored business loans. No claim has been received.”
RGL Management expressed surprise the claim was not mentioned in the bank’s results.
Shares in CYBG closed down 42p, or 16.91%, at 206.4p.
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