Virgin Money shares surge as it cashes in on higher interest rates 

Shares in Virgin Money surged after it cashed in on rising interest rates and boosted investor payouts.

The stock rose 14.9 per cent, or 21.75p, to 167.35p yesterday as the bank posted a 43 per cent increase in annual profits to £595million for the year to September.

Virgin Money – which bought Clydesdale and Yorkshire Banking Group in 2018 – said it would share the profits with investors by buying back another £50million worth of shares, taking total buybacks for 2022 to £125million.

Employees would also see a share of the gains, the bank said, as it vowed to lift pay for the majority of its 7,500 staff by 10 per cent, on top of a £1,000 cost-of-living payment announced in August.

Chief executive David Duffy said: ‘2022 has been a milestone year for Virgin Money.

‘We have good momentum while delivering a strong performance and improved returns for our shareholders.’

Virgin Money became the latest UK lender to reassure investors that it was not yet seeing any sign of customers becoming unable to repay their debts. 

Duffy said: ‘I think it’s inevitable that you will see some stress, but we see that as returning to a more normal cycle of stress.’

Virgin Money did, however, set aside £52million to cover loans expected to turn sour, in an acknowledgement that rising prices will continue to weigh on households. 

Duffy said: ‘We are aware that some customers will have to make difficult decisions in this environment, and we are proactively offering them help and support.’

While the cost-of-living crunch is eating away at customers’ bank accounts, higher interest rates – bumped up by the Bank of England to tackle inflation – are lucrative for lenders. 

Threadneedle Street has ramped up its base rate at an unprecedented speed as it attempts to get a grip on soaring costs. 

Rates have risen from the pandemic low of 0.1 per cent last December to 3 per cent.

When the Bank raises rates, lenders typically push up borrowing costs but do not raise savings rates as far – making a profit on the difference.

This so-called net interest margin has risen to 1.85 per cent at Virgin Money from 1.62 per cent a year earlier. And by 2023, the bank added, the net interest margin could be as high as 1.9 per cent.

Russ Mould, investment director at AJ Bell, said: ‘The better-than-expected dividend and buyback from Virgin Money are good news on their own but are also crucial for what they say about management’s confidence in the outlook for the business. 

Virgin Money has significant exposure to the mortgage market, although looking at its loan book it seems to have done a decent job of managing its risks.’