Virgin Money: More cost cutting and lower profits but £130m to be spent tackling cyber crime

Virgin Money, the Glasgow-headquartered banking group, plans to spend £130 million on artificial intelligence (AI) and new tech to help fight cyber crime and “future proof our business”, but warned the move would impact its performance and lead to further cost cutting.

The group, which has largely phased out its historic customer-facing Clydesdale Bank and Yorkshire Bank brands, said the spending programme would span three years, with some £40m earmarked for 2023-24, and comes as new advances in AI have increased the “sophistication and risk of attacks”. Virgin Money said it would need to cut costs by £200m a year, up from £175m previously, to pay for the plans through “further strategic rationalisation of our real estate portfolio, outsourcing and systems simplification”. It said to expect “more of the same” in terms of cost-cutting actions, having already shut branches and trimmed office space amid the shift towards online banking, with the potential for more jobs to be impacted.

Chief financial officer Clifford Abrahams said: “We do expect some roles to disappear going forward as we digitise the bank and to reflect the property consolidation, but we are adding roles in fraud and financial crime.”

The update came after the group announced in July that it would shut almost a third - 39 - of its bank branches, leaving it with around 90 across the UK, in a move that put 255 jobs at risk. Meanwhile, the bank reported that its full-year statutory pre-tax profit fell 42 per cent to £345m as it set aside £309m for loans expected to turn sour, up from £52m the previous year.

Glasgow-headquartered banking group Virgin Money has largely phased out the historic customer-facing Clydesdale Bank and Yorkshire Bank brands in favour of Virgin Money.

Chief executive David Duffy said: “We are stepping up investment in our technological capability to future proof our business and protect our customers from the growing risk of fraud strategies driven by advances in AI. This is the right thing to do for customers and the bank in the long term, safeguarding and protecting both as the environment evolves, and will support sustainable shareholder returns over time. While the investment will impact on returns in the short term, we believe it mitigates against the risk of greater impact on the bank and our customers in the future.”

Gary Greenwood, an analyst at brokerage Shore Capital, described the results as “disappointing”, adding: “The stock is undervalued, in our view, hence our buy stance, but the group’s poor track record of meeting expectations means it may struggle to re-rate in the near-term without a change of leadership.”

He noted that “on the plus side”, the group had announced a larger-than-expected share buyback of £150m.

Virgin Money said its plans to invest heavily in fraud and cyber crime prevention come as the threat has risen significantly recently. It told investors: “The rapidly increasing prevalence of online channels and social media are driving higher instances of fraud and financial crime in the UK.

“Increasingly, this will become an area where banks bear the full extent of fraud losses and associated penalties. Cyber crime represents another area of significant development, with new technologies including AI increasing the sophistication and risk of attacks.”

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