Photographer: Chris Ratcliffe/Bloomberg

Virgin Money Plunges on Concerns Weaker Capital May Limit Growth

  • Bank’s key loss-absorbing buffer fell in first half of 2017
  • Full-year net interest margin to be at ‘lower end’ of guidance

Virgin Money Holdings UK Plc fell the most in more than a year after the lender’s key capital measure declined in the first half of 2017, leading analysts to downgrade their growth expectations for the challenger bank backed by billionaire Richard Branson.

Virgin Money’s common equity tier 1 ratio, an gauge of high-quality capital, fell 1.5 percentage points to 13.8 percent from a year earlier, the Newcastle, England-based company said Tuesday. While pretax profit increased 26 percent, the bank cautioned its full-year net interest margin, a measure of profitability, will “be towards the lower end” of its previous guidance.

“The weaker capital position may raise concerns on the ability to keep growing the loan book at the current rate,” Citigroup Inc. analysts Ian Sealey and Andrew Coombs wrote in a report, which also highlighted lower net interest margin guidance. “Overall we view this as a slightly disappointing set of results.”

The shares fell as much as 9.7 percent, the biggest drop since July last year, and traded 8.4 percent lower at 280.8 pence at 9:24 a.m. in London. The firm is the worst-performing U.K. bank this year.

More Risk

Virgin Money has grown rapidly since Branson expanded his business empire in 2011 with the acquisition of nationalized lender Northern Rock Plc, pitting his firm against the nation’s largest banks that dominate the mortgage and credit card markets. After recording rapid growth in consumer credit, the Bank of England has warned U.K. lenders may be “dicing with” a “spiral of complacency” and unwittingly taking on more risk after years of low defaults and falling unemployment.

“We are extremely well capitalized and have sufficient capital to meet our plans for sure” and operate above the minimum 12 percent CET1 level requirements, Chief Executive Officer Jayne-Anne Gadhia said in an interview. “Complacency is a disease; we agree with the BOE, there should be a real focus on the development of unsecured debt so we are not creating another boom and bust economy.”

The bank’s credit card balances increased 33 percent to 2.8 billion pounds ($3.1 billion), according to the statement. Its net interest margin fell 1 basis point to 159 basis points from a year earlier.

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