Clydesdale set to '˜shake up' rivals after profits jump

Banking group CYBG, behind the Clydesdale and Yorkshire high street brands, has delivered its first annual pre-tax profit in five years in a strong start to life as an independent business.

Clydesdale's owner wants to 'disrupt the status quo' in the UK banking market. Picture: Maurice McDonald/PA

David Duffy, chief executive of the Glasgow-headquartered group that demerged from former owner NAB in February, said it had been a landmark year which had put the challenger bank in a good position to “disrupt the status quo in the UK banking market”.

CYBG posted bottom-line pre-tax profits of £77 million for the 12 months to 30 September against a loss of £285m the previous year. However, losses after tax were £164m, compared with a loss of £229m last year, predominantly down to changes in the accounting treatment of some assets.

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Shares fell by 9.3p to close at 285.4p, although they have risen by nearly two-thirds since the demerger in February.

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The group said talks over buying Royal Bank of Scotland’s 300-strong Williams & Glyn branch business were continuing after Santander pulled out of the running.

But CYBG is also cutting jobs and shutting branches as part of a drive to slash costs by an extra £100m. It said in September that it will trim its branch network further, from 248 to less than 200 over the next three years.

Alongside the cost savings, it is investing more than £350m over the next two years to overhaul the group by improving its online banking offering and boosting technology platforms.

Chairman Jim Pettigrew said: “Our ambition is straightforward: to become the credible alternative to the big UK banks.”

CYBG said it has seen a “limited” impact on its business from the Brexit vote, with mortgage lending still robust and lending to small businesses higher for the first time in four years.

But the group said lower for longer interest rates – following the cut to 0.25 per cent in August – would put pressure on its interest margins. The group grew its mortgage lending by 6.5 per cent over the year and saw its small business loan book increase by 6.1 per cent.

Numis analyst Jonathan Goslin said that the group’s key cost/income ratio of 74 per cent showed scope “for improvement”, and that there were concerns about “both the level of work that is required and the lack of success the previous parent NAB had in trying to do this”.

Goslin said CYBG shares should trade at a sizeable discount to peers to “reflect the challenges management will inevitably face in cleaning up such an old and sprawling business”.

Gary Greenwood at Shore Capital said a Williams & Glyn deal “could be fraught with execution risk in our view”.

He said the investment case for owning CYBG shares is based on delivering significant cost and capital efficiencies, much of which is “within management’s control”.