CYBG Falls as U.K. Growth Outlook Undermines New Strategic Plan

  • Loan growth may slow at Clydesdale and Yorkshire banks
  • Capital transition to take longer than analysts expected

CYBG Plc, the consumer lender spun off by National Australia Bank Ltd., fell the most in two months as the U.K. bank lowered loan growth prospects and indicated it may take a year longer than expected to free capital from its balance sheet.

The stock dropped as much as 5 percent in London trading after the bank said it expects “mid-single digit” loan growth after the Brexit vote, requiring deeper cost cuts. The bank will also take until 2020 to transition to a new method for measuring regulatory capital, known as an internal ratings-based model, which will free up funds to return to investors.

“In an environment with a clearly tougher outlook for margins and lower than expected loan growth, the group’s cost-cutting program is larger than we were expecting,” Richard Smith, an analyst at Keefe, Bruyette & Woods Ltd., said in a report Tuesday. “We think the longer wait for a move onto an internal ratings-based model is a disappointment and that the market had assumed this would come through more quickly.”

The 178-year-old lender, which owns the Clydesdale Bank and Yorkshire Bank brands, is the largest publicly traded independent bank seeking to wrestle a larger share of the retail market from the Britain’s dominant four biggest lenders. The stock has gained more than a third since National Australia Bank split from the U.K. consumer bank and took CYBG public in Sydney and London in February after years of writedowns, capital infusions and losses at the British unit, which it acquired in 1987.

CYBG is seeking more than 100 million pounds ($133 million) of cost savings to reduce group costs to less than 630 million pounds in order to achieve a double-digit return on equity by 2019, a year earlier than it previously guided. The bank says it will invest more than 350 million pounds during the next two years to simplify its business and save money, while incurring 200 million pounds of restructuring costs.

Job Cuts

In May, Chief Executive Officer David Duffy said he was cutting 500 jobs to shrink headcount to about 6,500. The bank is also planning to cut to less than 200 branches from the current 248 outlets, according to Duffy.

“We see branches as fundamental to the future of the Clydesdale franchise, both in Scotland and in Yorkshire,” Duffy said in an interview.

The shares fell 4 percent to 261.1 pence at 1:14 p.m. in London after earlier plunging 5 percent, the most since July 5.

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