Virgin Money is expecting to take a £450 million hit for last minute PPI claims following its £1.7 billion takeover by the former Clydesdale Yorkshire Banking Group (CYBG) last year.
Experts believe the loss will drag the new bank’s profits down to a £250 million loss on the year, putting dampener on its expansion plans.
The newly expanded Virgin Money is just the latest lender to announce a multi-million pound increase to its compensation pot following a huge surge of late claims before the PPI deadline on August 29th.
CYBG had previously added £30 million in May, but in his half year statement chief financial officer Ian Smith had warned: “There is a risk that existing provisions for PPI customer redress may not cover all potential costs.
“In light of this, the eventual costs of PPI redress and complaint handling may therefore differ materially from that estimated and further provision could be required.”
Top analyst Ian Gordon said of the latest figures: “They will be reporting a material loss courtesy of the PPI charge. It screams out as a cheap bank now.
“The share price has fallen from 200p in July to 143.7p, largely thanks to a bleaker economic outlook, low interest rates and PPI worries.”
Chief executive David Duffy has announced expansion plans which include the opening of three new branches in London, Birmingham and Manchester. CYBG already has 159 and Virgin Money had 74 at the time of the takeover.
The group is said to be spending £60 million on re-branding with the larger CYBG taking the Virgin Money name and seeking to poach new accounts from its high street competitors to add to the 6.4 million it already has.
The latest FCA PPI compensation figures show £36.4 billion has already been paid in since January 2011.
There has been no update on the figure since September when the massive wave of last minute complaints swamped the banks.
The latest monthly figure given is £432.9 million for July which was the highest monthly total since March of 2016