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UK's Virgin Money flags cost pressures in digital push

·2-min read
People walk past a Virgin Money store in central London

By Muvija M and Iain Withers

(Reuters) -British challenger bank Virgin Money revised its strategy on Thursday to switch faster to digital banking services, but warned it would have to spend more to get there, sending its shares down as much as 6%.

The lender said it aimed to cut 175 million pounds ($238 million) from its costs over the next three years, but restructuring costs incurred over the period would hit 275 million pounds to achieve this - around double what analysts had expected.

It said the additional cost savings would include cutting branches and offices and embedding remote working over time, but gave no further details.

Virgin Money said in September it planned to close almost one in five of its branches, axing 31 of 162.

The bank also said on Thursday it would return to full-year profit and reinstate a dividend of 1 pence per share, as it benefited from Britain's economic recovery from pandemic lockdowns.

Virgin Money said it expected to report pre-tax profits of 417 million pounds for the year to Sept. 30 in unaudited figures, compared to a 168-million pound loss the previous year.

"We think the market will focus on the significantly higher opex and restructuring costs guidance (in spite of the longer-term cost targets) and that the stock will experience selling pressure this morning," banking analyst John Cronin at Goodbody said in a note.

The shares were last down 4% at 1005 GMT.

Virgin Money said its planned investment in digital services and cost-cutting would help it hit double-digit returns on tangible equity by 2024.

The lender, born out of the merger of CYBG and Virgin Money, said its net interest margin - a key measure of a bank's underlying profitability - improved 6 basis points to 1.62%.

($1 = 0.7337 pounds)

(Reporting by Muvija M in Bengaluru and Iain Withers in LondonEditing by Rachel Armstrong)

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