Virgin Money profits jump, shares slip on cautious outlook

By Shanima A and Iain Withers

(Reuters) -British bank Virgin Money posted a jump in half-year profits, but disappointed some investors by not announcing a share buyback plan, sending its shares down 10%.

The lender, born out of the merger of CYBG and Virgin Money, said on Thursday it was boosted by strong credit card spending and rising interest rates as the economy rebounded from COVID-19 lockdowns.

But it warned higher inflation - partly fuelled by the economic effects of Russia's invasion of Ukraine - had seen expectations for further growth start to temper.

The Bank of England later in the day sent a stark warning that Britain risks a double whammy of a recession and inflation above 10%, even as it raised interest rates to 1%.

Rising rates partly enabled Virgin Money to upgrade its outlook for net interest margin - a key indicator of underlying profit - to between 1.8% and 1.85% for the year, up from 1.75% previously.

But analysts noted this implied a potential dip, as the metric had already leapt to 1.83% in the six months to March.

"While the improved guidance is a positive, Virgin Money has been too conservative on the outlook for its margins and the bank also disappointed some by not announcing a buyback or signalling that one is coming soon," said John Cronin, banking analyst at Goodbody.

Virgin Money shares closed down 10% on the day at 159.7 pence.

The bank reported underlying pretax profit of 388 million pounds ($487 million) for the period, up from 245 million the previous year. After stripping out one-off costs, pretax profits leapt more than four-fold to 315 million pounds.

The lender said it was "prudently" provisioned for any downturn and was factoring in cost pressures on consumers into its lending affordability tests.

British households are facing the biggest cost-of-living squeeze since records began in the 1950s, according to the country's budget forecasters.

"We have positive momentum in attracting new customers to Virgin Money through record credit card sales, good growth in personal current account openings and a strong uptake of our new digital fee-free business current account," Chief Executive Officer David Duffy said.

(Reporting by Shanima A in Bengaluru and Iain Withers in LondonEditing by Rashmi Aich and Mark Potter)