Virgin Money warns of stress on earnings forward of Nationwide takeover
- Net interest margin faces pressure from lower base rate and higher costs
Virgin Money UK expects profitability to come under pressure in the second half of 2024, reflecting higher costs and investments.
The lender, which is in the process of a £2.9billion takeover by Nationwide Building Society, told investors on Tuesday it anticipates ‘downward pressure’ on its net interest margin – a key measure of banking sector profitability – after a ‘strong’ first half performance.
Credit card and business lending strength, as well as higher customer deposits, put first half NIM on track to reach ‘the upper end’ of VMUK’s 190 to 195 basis point range, the lender said.
Shareholders will vote on the Nationwide takeover on 22 May
However, VMUK expects a weaker contribution from credit cards, lower interest rates, competition, ‘cost pressures from inflation and investment’ to weigh in the months ahead, ‘which will only be partially mitigated’ by its cost cutting plans.
It continues to anticipate 5 to 10 per cent growth across business and unsecured lending for the full year, as first-half strength helps to keep NIM in the range of 190 to 195bps.
Boss David Duffy said: ‘Over the first six months, we have continued to deliver on our strategic ambitions in line with expectations.
‘While we expect there to be headwinds through the second half of the year, we remain well placed to deliver growth in our target segments.’
Shareholders will vote on the Nationwide takeover on 22 May, ahead of the publication of VMUK’s interim results on 13 June.
Controversially, however, Nationwide members will not get a vote on the takeover.
Ahead of the potential deal’s completion, VMUK has scrapped an existing share buyback programme and said it does not intend to announce any further shareholder payouts.
It has also has deferred certain restructuring activity.
VMUK, however, still expects to pay a 2024 full-year dividend of 2p per share as announced by its board.
The firm said: ‘The group believes the acquisition of Virgin Money by Nationwide presents an exciting opportunity to build on our significant strategic progress by combining two complementary businesses that together can offer more great products and services to a larger customer base, while delivering value for our shareholders.’
