13 June 2024 , 08:04
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Virgin Money has warned of "headwinds" due to anticipated interest rate cuts and highlighted cost pressures as it temporarily halts certain restructuring efforts amid its £2.9billion acquisition by Nationwide Building Society.
The high street bank, set to merge with Nationwide, revealed an 18% jump in pre-tax profits reaching £279million for the half-year period ending March 31. However, the lender is gearing up for a dip in its net interest margin a crucial measure of profitability for banks in the latter half of the year, citing likely interest rate reductions and persistent competition in the banking industry.
Rising wages and inflation are also driving costs up, with Virgin Money noting limited options to mitigate these effects while some of its restructuring plans are paused during the takeover process. Nationwide has committed to maintaining branches, promising to keep one open in every location where the merged entity operates until at least early 2028.
Despite this, Virgin Money has refrained from announcing additional branch closures this year and has put a hold on previously declared intentions to reduce its workforce further. In the first quarter, the group trimmed its staff by about 150 full-time positions and had previously indicated in an earlier trading update that more job cuts were on the horizon.
Moreover, Virgin Money anticipates that fees associated with the takeover will be "significantly" higher in the second half of the year, adding to the financial strain. David Duffy, the Chief Executive, commented: "As we look out in to the second half, the group does expect downward pressure on net interest margin relative to the first half."
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"We also anticipate cost pressures from inflation and investment in the second half, which will only be partially mitigated by the ongoing cost savings programme, where certain restructuring activities have now been deferred in light of the proposed acquisition by Nationwide. While we expect there to be headwinds through the second half of the year, we remain well placed to deliver growth in our target segments."
The statistics for the group's half-year showed a slight increase of 0.3% in total customer lending, rising to £72.7billion in the first half. Completion of the Nationwide deal is still anticipated within the final quarter of 2024.
However, it has recently come to light that the takeover is under investigation by the Competition and Markets Authority (CMA). It has welcomed feedback from interested parties, setting forth a deadline of June 14 for responses.