CYBG receives eight months’ PPI requests in a month
The company saw 20 per cent wiped off its share price on Thursday 5 September as a result. Shares were trading at 113.2p on Friday 6 September, up from the day opening price of 112p.
The bank received more than eight months’ worth of requests in one month ahead of final deadline on 29 August.
This amounted to about 340,000 in aggregate over five weeks, of which 120,000 were received in the final three days.
Additionally, the bank pointed to an “increase in complaints during the period, with an average of 5,000 a week during the first four weeks of August and an additional 22,000 during the final three days.”
The estimated additional cost is based on historical uphold rates, average redress and cost-to-do assumptions. The provisional figure reflects the unknown of how many of the information requests will convert into upheld complaints and the bank said it couldn’t determine that until it has processed more of the requests.
The additional provisional costs comprise £100m for complaints, information request processing costs of £100m and upheld complaint costs of £100 to £250m, based on a conversion rate of five per cent to 12 per cent.
CYBG said it expects to provide a more accurate estimate of the cost at its full-year results on 28 November.
The bank outlined how complaint costs were tracking broadly in line with assumptions as of 30 June. There was a slight increase during July, but it was not considered material.
In the Q3 trading update, the bank reported that it had seen a significant increase but at that point it was too early to say how many valid complaints would materialise.
CYBG bought Virgin Money last year.
CYBG reveals mainstream and complex lending strategies alongside Virgin Money rebrand
The group, which includes Clydesdale Bank, Yorkshire Bank and Virgin Money, will also commence a rebranding of all its banking offerings under the Virgin Money name this year.
Announcing the changes, the lender said it was aiming to maintain around a four per cent share of the mortgage market.
Two new branded offerings will be launched for the broker market: Virgin Money Everyday for mainstream lending and Virgin Money Expert for more complex lending offers, “combining the strengths of both Virgin Money and CYBG in the mortgage market,” the lender said.
It added that mortgage customers and brokers would benefit from significant investment across all mortgage channels.
This will include “leveraging of APIs (application programming interfaces) and wider technology capabilities to enhance the broker platform and extend reach to thousands of new broker partners”.
A new online and mobile mortgage hub for consumers including an artificial intelligence mortgage assistant will also be launched.
CYBG PLC will change its name to Virgin Money UK PLC in late 2019, with the entire business to operate under the Virgin Money brand by the end of 2021.
The rebrand of the B digital bank to Virgin Money will begin in 2019, to complete in the first half of 2020, includes the rebranding of B’s flagship stores to Virgin Money.
Yorkshire Bank will begin rebranding in late 2019 and Clydesdale Bank will begin in the second half of 2020.
The lender noted that the decision to retire the Clydesdale and Yorkshire brand names was not an easy one, but doing so would allow it to realise efficiencies and grow the business throughout the UK.
A Virgin money branded business bank will also be launched by summer 2020 with a full-service current account going live by the end of this year.
Desire to disrupt
Addressing the rebrand and updated medium-term strategy, CYBG CEO David Duffy highlighted that consumers were increasingly using technology to complete the financial transactions.
“Banking is changing at an unprecedented rate. Consumers are using new technology in every part of their lives. With amazing customer experiences available in other industries, they are rightly demanding so much more from their banks,” Duffy said.
“We have a clear ambition to disrupt the status quo with the new Virgin Money. Our new financial targets will deliver a significantly more efficient and profitable business with strong and sustainable returns for our shareholders.
“Despite the ongoing Brexit headwinds and continued competitive pressures, the strength of the combination gives us every confidence we will deliver on our targets,” he added.
CYBG to ‘proactively reduce’ mortgage lending as market competition bites
Overall it completed £5.8bn in new mortgage lending during the six months between 1 October 2018 and 31 March 2019.
In interim first half results published today, the lender noted that the market had remained “highly competitive” due to a large number of active lenders and surplus cash from ring-fenced banks.
This, it highlighted, had led to “an over-supply of lending and dilution of mortgage margins”.
As a result, CYBG said it would be cutting back in certain sectors, but did not name those areas.
“We expect the pace of lending growth in our mortgage book to slow in the second half as we look to optimise the mix of lending in our portfolio and proactively reduce volume in selected segments in order to mitigate some of the margin pressures,” it said.
It added: “The uncertain economic backdrop and the maturity profile of business means that the gross lending market continues to be driven by remortgaging activity, up 10 per cent on the prior period.
“We continued to see a growing number of customers favour longer term fixed rate mortgage products, as customers seek to further capitalise on the prevailing low interest rate environment. “Conversely, UK variable rate and Standard Variable Rate (SVR) balances have reduced.”
Higher margin LTVs hit
In a sign of the competitive market, net interest income was down one per cent on the first six months of 2018, driven by mortgage rates, including more recently at higher loan to values (LTVs).
Group net interest margin (NIM) had reduced 1.71 per cent, down from 1.84 per cent in March 2018, but was stable compared to the 1.72 per cent in the second half of 2018.
“The largest impact on group NIM has been the continued dilution in mortgage margins due to sustained competition and more recent pressure in the higher margin segments of the market,” CYBG said.
“Furthermore, we continue to see mortgage customers favouring fixed rate deals and this customer preference, alongside proactive early retention programmes across the industry, continues to exert pressure on mortgage margins through competitive fixed rate pricing and lower SVR balances.”
CYBG finalised the takeover of Virgin Money on 15 October, and the bank increased its mortgage loan book by 2.5 per cent to £60.5bn.
The average loan to value (LTV) of new lending increased slightly to 69.5 per cent from 68.8 per cent and the average LTV of the mortgage book also increased to 58.2 per cent from 57.3 per cent.
The proportion of residential mortgages 90 days in arrears was stable at 0.30 per cent.
CYBG acknowledged that the buy-to-let property market had been more subdued following the tax relief changes for landlords, the increase in stamp duty and enhanced affordability assessments.
Underlying profit before tax of £286m was five per cent lower year-on-year due to the expected acquisition and integration costs, but was up two per cent on the previous six months.
Mortgage pricing stabilising
CYBG chief executive officer David Duffy said the bank had delivered a resilient underlying financial performance and that its three-year integration programme was making good progress.
“As previously announced, we have also increased our forecast of the total cost synergies available by £30m to a minimum of £150m by the end of financial year 2021.”
“Despite sustained competition in the mortgage market and a continued uncertain economic backdrop, we have delivered solid growth in our mortgage book and we have seen signs that mortgage pricing has started to stabilise.
“We remain on track to deliver 2019 performance in line with guidance and look forward to updating the market in June on our refreshed strategy and the significant opportunities for our combined business,” he added.
CYBG highlights ‘sustained pricing pressure’ in mortgage market
The firm said it had benefited from a strong pipeline of cases coming into the quarter, as well as good customer retention levels.
Overall the customer loan book rose by 1.4% to a total of £71.9bn.
However the lender’s net interest margin for the quarter dropped to 172bps, with CYBG forecasting that across this financial year it will drop down to between 165-170bps, which it put down to “sustained pricing pressure in the UK mortgage market”.
It noted that the dynamics of the mortgage market are likely to remain unchanged over the next 12 months, which means the lender is likely to see net mortgage lending growth for the year to fall “as we focus on optimisation of volume and value”.
Virgin Money integration hits £261m
CYBG purchased Virgin Money for £1.7bn in October last year. The purchase had led to £161m of ‘exceptional charges’ with a further £100m of integration, rebranding and restructuring costs anticipated across the rest of this financial year.
David Duffy (pictured), chief executive officer at CYBG, said the firm had made a good start to the year and was making “encouraging process” on the initial stages of the three-year integration programme with Virgin Money.
The statement from CYBG noted that the “rationalisation” of the top two layers of senior management was now largely complete, following the purchase, while the VM Digital Bank project has been closed down.
Duffy noted that in a “highly competitive environment” CYBG had delivered “ahead-of-market lending growth”, concluding: “Market conditions remain uncertain while we await the outcome of the Brexit negotiations, but we remain focussed on supporting our customers and delivering against the factors within our control.”
CYBG admits swap rate hikes not being passed on to mortgage customers
In its 2018 annual results, CYBG confirmed lenders were choosing to swallow the increases and take the hit on their margins.
Its results showed a 10 basis point fall in net interest margin to 2.17% which was “driven by the competitive front book pricing environment in mortgages”.
CYBG also acknowledged it had experienced issues with broker servicing around the start of 2018 which had hit its pipeline, but said these had been solved with normal levels of growth returning.
In all, around 80% of its £5.2bn mortgage sales during the year were completed through brokers, with market share rising slightly from 1.73% to 1.77%.
“In late 2017, we brought mortgage processing back onshore, as part of our customer journey improvement initiatives,” it said.
“Some servicing and fulfilment delays arose resulting in our broker pipeline build being lower than we had hoped, with mortgage growth slower around the third quarter of the financial year when we felt the impact of lower applications at the start of 2018.
“These issues are now resolved, with a return to a more normalised level of growth in the final quarter.”
CYBG added that the outlook for the UK lending market was more subdued than in recent years.
“In the mortgage market, economic uncertainty has reduced customer demand while competition has remained intense, resulting in a challenging pricing environment, with swap rate increases not being fully passed on to customer pricing,” it said.
“We expect to see strong competition for mortgages and deposits in the year ahead that will feed through into margin pressure.”
Fixed-rate deals favoured
CYBG’s loan book grew 4.5% to £24.5bn with the loan to value (LTV) of its mortgage portfolio rising slightly to 58.8% from 57.5%.
It noted that customers were continuing to favour fixed rate mortgage products with its fixed rate book growing to 78% of total mortgage balances and accounted for 96% of mortgages drawn in the year.
Longer term fixed rate mortgages are growing more popular with five-year fixed mortgages now accounting for 27% of the portfolio, compared to 22% in 2017, it added.
The buy‐to‐let (BTL) property market has been more subdued with this falling from 33% to 31% of business.
CEO David Duffy, said it had been a landmark year for CYBG including the takeover of Virgin Money.
Underlying profit before tax was up 13% year-on-year to £331m but the group suffered a statutory loss after tax of £145m due to legacy payment protection insurance costs.
“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,” Duffy said.
“Clearly Brexit negotiations mean the external political and macro-economic 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.”
Clydesdale Bank takeover of Virgin Money gets green light from regulators
The banks reached a deal in June, which was approved by shareholders in September, with the terms now agreed by both the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA).
Shares to Virgin Money are set to be issued by October 15, with shareholders owning approximately 38% of the combined group.
After the merger is complete, CYBG is expected to have just over 5% of the UK mortgage market.
The banks previously said the majority of Virgin Money mortgages will be migrated to CYBG platforms on renewal.
CYBG chief executive David Duffy previously said the merger would mean the bank is better equipped to take on the large market incumbents.
He said: “Together we will serve around six million customers, with the scale, capabilities and financial muscle to disrupt the status quo – and with a clear ambition to provide our customers with the best service in the UK.”
Clydesdale and Yorkshire Bank owner warns over mortgage growth
The owner of Clydesdale Bank and Yorkshire Bank reported a fall in mortgage drawdowns in the three months to the end of June 2018, following lower application levels in the three months prior.
Fierce competition has put pressure on pricing, CYBG said.
Mortgage growth over nine months to June has lifted 3.8% to £24.2bn, the group reported.
The group said the offer for Virgin Money agreed in April continues to progress as planned.
David Duffy, CYBG chief executive (pictured), said: “We have delivered another solid performance this quarter, achieving sustainable lending and deposit growth in a highly competitive market while maintaining a stable net interest margin and delivering further cost and process efficiencies in the business.
“We remain on track to deliver our guidance for FY18.
“The economic and political environment in the UK remains uncertain, but we remain focused on delivering our strategic objectives and capturing further growth opportunities.
“We continue to expect our recommended all-share offer for Virgin Money to complete in calendar Q4 2018, subject to shareholder and regulatory approvals, creating the UK’s first true national competitor to the status quo.”
Clydesdale Group seals £1.7bn Virgin Money takeover
CYBG Group initially offered around £1.6bn for Virgin Money in May with 1.1297 new group shares in exchange for each Virgin Money share, but later upped its offer to 1.2125 new shares, which has been accepted.
It will leave Virgin Money shareholders owning approximately 38% of the combined group when the deal is completed.
The combined bank will have a little over 5% of the UK mortgage market, according to last year’s data from UK Finance.
It will have a £57.8bn portfolio of mortgages, representing 83% of total customer lending, with an average indexed loan-to-value of 57.2%, a net cost of risk of one basis point and a non-performing loan ratio of 0.6%.
A statement from the two institutions said it expects a significant majority of Virgin Money mortgages and cash ISAs to be migrated to CYBG platforms on renewal.
Overall an estimated 30% of all accounts of the combined group will be part of a transfer or migration process within its proposed integration plan.
The statement added that the IT migration will be phased over 36 months “to minimise execution risk with operational integration phased over a similar timeframe”.
Six million customers
CYBG CEO David Duffy said the move would create a national, full-service bank with the capabilities needed to compete effectively with the large incumbent banks.
“Together we will serve around six million customers, with the scale, capabilities and financial muscle to disrupt the status quo – and with a clear ambition to provide our customers with the best service in the UK,” he said.
“The strategic rationale is clear and offers both sets of shareholders real value, material earnings accretion, and enhanced capital generation for the benefit of all shareholders, together with both firms’ customers, colleagues and local communities.”
Virgin Money CEO Jayne-Anne Gadhia added that the offer reflected confidence in the bank’s strategy, track record of delivery and the complementary strengths of the two businesses.
“The combination of Virgin Money with CYBG will have greater scale to challenge the big banks. It will also accelerate the delivery of our strategic objectives, particularly the expansion of the products we offer to customers,” she said.
“The combined group will remain a committed voice behind the Women in Finance Charter as well as working to reduce the gender pay gap,” she added.
PRA to hire bankers to review Williams and Glyn acquisition
According to The Sunday Telegraph, the PRA is hiring advisers to examine the deal and whether the integration of W&G’s computer systems could cripple CYBG.
Last month CYBG announced it was in discussions with Royal Bank of Scotland (RBS) to take on its W&G unit and made a preliminary non-binding proposal.
RBS has struggled to divest its W&G’s arm since the financial crash in 2008 when it was tasked with the job of separating out W&G by the end of 2017 as part of its £45bn bailout.
The bank failed to agree the terms of the sale of W&G in H1, citing the archaic IT system currently in place as the cause.
This is not the first time the IT system has proved an obstacle for offloading W&G as Santander bank emerged as a bidder in 2012, only to walk away because of issues with its IT system. In August, the bank put in another bid but it collapsed because of a disagreement over the price.
If CYBG successfully acquires W&G, the new bank will have 314 branches with an expected 1.8m customers, catapulting the lender into becoming one of the country’s biggest challenger banks.
Update: More lenders move to cut borrowing rates
The mutual said base rate-linked mortgage deals, which are guaranteed to be no more than 2% above the Bank of England base rate, will be reduced from 2.50% to 2.25% from 1 September. Customers on a standard mortgage rate will see their rate cut to 3.74%, while tracker mortgage borrowers will receive the full 0.25%, unless their loan has a tracker floor.
All new and pipeline applications affected by the rate cut will reflect the reduction from Wednesday 10 August.
Yesterday, Coventry Building Society was the first lender to communicate its plans to customers, with Santander, Barclays, Virgin Money and Natwest following shortly after – although some firms are still yet to confirm their stance for SVR borrowers.
Today, TSB revealed that existing customers on variable rate mortgages will see a 0.25% change to their rate from 1 September, with new customers benefitting from 8 August.
Leeds Building Society will also pass on the change to standard variable rate (SVR) borrowers from 1 September, with tracker rates reducing automatically following Mark Carney’s announcement.
HSBC is passing on the full reduction to customers with tracker mortgages today and SVR customers will see their rate drop from 3.94% to 3.69%from 1 September.
A spokesman for Yorkshire Building Society confirmed that tracker rates would be adjusted accordingly, subject to minimum rate conditions, but added that its SVR mortgages are still under review.
“All on-sale mortgage and savings accounts are unchanged at present,” he added.
CYBG (Clydesdale and Yorkshire banks) and Skipton Building Society are still finalising their plans.
Both firms said they were sitting tight and monitoring market reaction before they made their decisions.