Quarterly customer lending hits £71.9bn as CYBG begins Virgin Money integration

Yorkshire Bank’s parent, the Clydesdale and Yorkshire Banking Group (CYBG), has seen customer lending grow 1.4% to £71.9bn in Q1 – the period in which it completed its £1.7bn acquisition of Virgin Money.

Reporting on the three months to 31 December 2018, CYBG said the group had also made good progress in reducing its underlying operating costs and remained on track to deliver its FY19 guidance of a £950m reduction. 

In the period, CYBG incurred £161m of exceptional charges including £48m of costs incurred by Virgin Money in relation to the transaction, £8m of acquisition associated stamp duty, £77m in relation to the closure of the VMDB project (including a £70m capital-neutral asset write-off) and £17m of initial integration spend.

During the remainder of FY19 the Group expects to incur a further £100m of integration, re-branding, and restructuring costs.

Having confirmed the initial cost synergy assumptions, the Group now expects to deliver £150m of annual net run-rate cost synergies by the end of FY21 – up from the £120m announced previously.

Q1 customer lending growth stood at 1.4%, rising to £71.9bn. CYBG saw Q1 mortgage growth of 1.5% to £60bn and  Q1 SME growth of 1.2% to £7.6bn with £600m of drawdowns.

In January, CYBG  signed a conditional agreement in relation to the strategic joint venture with Aberdeen Standard Investments (ASI). CYBG said it would enable the Group to offer market-leading investment solutions through the Virgin Money brand, enabled by ASI’s asset management technology.

David Duffy, Chief Executive Officer of CYBG, said:“The Group has made a good start to the year and we are making encouraging progress on the initial stages of the three-year Virgin Money integration programme.

“In a highly competitive environment, we have delivered ahead-of-market lending growth for our customers and improved our NIM guidance for 2019. We have also made good progress on cost reductions and have now increased our integration synergy target to £150m.

“I am particularly encouraged by our performance in SME. We are well prepared for the start of the RBS Incentivised Switching Scheme and we hope to attract a large proportion of the 120,000 SME customers that RBS are required to switch. We have also recently submitted our application for a grant from the RBS Capability and Innovation Fund, where we believe we offer the strongest case for delivering a genuine boost to competition in the SME market.

“Market conditions remain uncertain while we await the outcome of the Brexit negotiations, but we remain focused on supporting our customers and delivering against the factors within our control.”

CYBG added: “The political situation in the UK remains highly uncertain and the potential impact on the UK economy remains unclear, but the Group remains focused on unlocking the opportunities from the Virgin Money acquisition and delivering our FY19 margin and cost guidance.

“In terms of asset growth, mortgage market dynamics remain consistent with those experienced over the last 12 months and pricing in that market remains highly competitive. In light of this, net mortgage lending growth for the full year will be lower as we focus on optimisation of volume and value. SME and unsecured lending growth are expected to remain robust.”

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