Virgin Money sinks to loss after putting £500m aside for bad loans

Virgin Money has sunk to a full-year loss after setting aside £501million to cover bad loans.

The challenger bank, which was also knocked by £292million of costs related to its acquisition of Clydesdale and Yorkshire Bank, reported a pre-tax loss of £168million for the 12 months to September.

Although chief executive David Duffy said the pandemic had not yet affected its loan book, the bank has squirrelled away £501million for loans it expects to turn sour and has built its capital buffers above regulatory requirements to £950million.

Costs: Virgin Money has squirrelled away £501m for loans it expects to turn sour and has built its capital buffers above regulatory requirements to £950m

Duffy added: ‘We are optimistic in the medium term but cautious in the interim given the highly uncertain economic outlook. The optimism about the vaccine is out there but we haven’t factored it in.

‘The economic benefit of vaccines being delivered and deployed – it’s unclear when and how big that will be.’

Virgin Money, whose largest shareholder, with a 13 per cent stake, is Richard Branson’s Virgin Group, is rebranding all its Clydesdale and Yorkshire Bank branches under the Virgin Money brand.

It has resumed job cuts and branch closures as it said it was coping better than expected with the pandemic disruption.

In 2018, when the takeover of Clydesdale and Yorkshire Bank was announced, Virgin said it would cut 1,500 jobs, around 16 per cent of the workforce, and yesterday stuck to that.

It is also closing around 52 branches. The lender plans to steal business from the lumbering traditional high street banks by becoming a digital-focused brand.

During the pandemic, it has handed out more than £1billion in emergency government-backed loans to its business customers.

This includes £809million in Bounce Back loans to 28,077 customers, £334million in the slightly bigger CBILS loans to 907 customers, and £20million in CLBILS loans to three firms.

This is less than other ‘challenger’ lenders, such as digital bank Starling.

Duffy said: ‘I don’t have any concerns about the lending we’ve done. There is an environment out there where we know there’s been a lot of fraud, and what we’ve been very happy to do is lend to those customers who we have a relationship with and know.’

The National Audit Office has estimated that £26billion of the £42.2billion handed out by all banks under Bounce Back, which is 100 per cent guaranteed by the taxpayer, could be lost through fraud and borrowers going bust.

Virgin Money said it had also seen ‘very strong activity’ in mortgage applications since the first lockdown lifted, as buyers take advantage of the stamp duty holiday.

Interim chief financial officer Enda Johnson said pricing in the mortgage market, which had been competitive as banks offered the lowest rates to draw in customers, had become more ‘supportive’ amid the rush.