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CYBG shares jump as it reveals lower cost estimates and says it will meet 2017 guidance

Last updated: 05:27 01 Aug 2017 EDT, First published: 03:27 01 Aug 2017 EDT

Yorkshire Bank
The parent company of Yorkshire Bank said third quarter trading was in line with expectations

CYBG PLC (LON:CYBG), the owner of Clydesdale Bank and Yorkshire Bank, has reiterated its full year guidance as it delivered a third quarter trading update which was in line with expectations and as it cut costs as part of a restructuring.

Shares jumped 8.42% to 289p in late morning trading as the company said it expects full year underlying operating costs to come in below £680mln, compared to its previous guidance of £690mln to £700mln, following a successful overhaul.  It is also targeting a “modest inaugural” dividend. 

“While the economic and political environment in the UK remains uncertain, we are focused on delivering our strategic objectives,” said chief executive David Duffy.

“We remain confident that the medium term strategy we outlined at our capital markets day in September 2016 will differentiate us from our competitors and deliver our fiscal year 2019 targets as we seek to build a better bank for our customers and staff and improve returns for our shareholders."

Clydesdale Bank to close defined benefit pension scheme

CYBG also announced that Clydesdale Bank has reached an agreement to close its defined benefit pension scheme, which will have a positive impact of about £86mln in the fourth quarter. A triennial valuation of the scheme has also been agreed, resulting in a reduced deficit of £290mln and freeing CYBG from its requirement to increase contributions to the scheme.

Liabilities following the closure of the scheme to future accrual have been cut by about £131mln.

In the nine months to 30 June, the bank reported mortgage growth of 4.8% with record volumes of applications in the third quarter. It also saw a 4.7% increase in the core lending to small and medium business enterprises.

The net interest margin, a measure of profitability, rose to an annual rate of 2.29% during the period, as the benefit of deposit repricing offset competitive pressure on asset yields in retail lending.

The group’s capital buffer, or common equity tier 1 (CET1) ratio, was 12.4% at the end of June, down from 12.5% at 31 March but within the target range of 12% to 13%. Business growth and restructuring costs led the reduction in CET1, CYBG said. 

Shore Capital upgrades full year estimates 

Shore Capital said the trading update beat its estimates for mortgage, SME and NIM growth. 

"All else equal, we expect this update to result in a modest (mid-single digit percentage) upgrade to our full year adjusted earnings estimates," said ShoreCap's Gary Greenwood. 

However, the analyst believes the shares look expensive given weak returns and repeated a 'hold' rating and target price of 267p.

 

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