Virgin Money launches new £150m share buyback despite rise in impairments
Virgin Money has launched a £150m share buyback programme despite a fall in pretax profit driven by a surge in impairments.
The challenger bank previously commenced a £50m buyback in August, taking the total this year to £200m.
Pretax profit came in at £345m for the year ending on 30 September, down from £595m in 2022. The news sent shares down 3.6 per cent on Thursday morning.
Impairment losses on credit exposures jumped to £309m, up from £52m last year. The jump reflected “prudent macroeconomics,” although the bank noted “credit quality remains robust with low arrears.”
Underlying expenses of £971m were six per cent higher than last year as the bank noted “additional costs to resolve service challenges and higher levels of investment.”
Net interest income rose by £124m, up eight per cent from 2022, as the bank continued to reap the benefits of high interest rates and structural hedging.
The bank’s net interest margin (NIM) – measuring the difference between what it pays out to savers and receives in interest payments – rose 0.06 per cent to 1.91 per cent.
Changing customer behaviour and a highly competitive mortgage market have hit many other banks’ margins in recent months as the tailwind from the higher interest rates dies down.
Virgin Money forecast a NIM of 190 to 195 basis points for 2024, helped by structural hedging and growth in higher margin lending.
Chief executive David Duffy said: “2023 has been another year of significant change in the operating environment and I am pleased that we have continued to deliver against this backdrop.
“The combination of the higher rate environment and our strategy is increasingly translating into growth in relationship customer accounts and income.”
However, RBC analyst Benjamin Toms said in a note: “We struggle to understand what makes VMUK an attractive investment other than the fact that the bank is cheap.
“VMUK is in the middle of the pack when it comes to interest rate sensitivity and excess capital and we are not quite sure if this bank is branch or digital led. It feels like a lot of investment is still required to compete with large UK peers.”