Virgin Money staff will share bonuses averaging more than £8,000 each after the challenger bank increased underlying profits by 53 per cent in its first full year as a listed company.
Virgin, which bought a hefty chunk of Northern Rock from the government in November 2011, reported profits before tax of £160.3 million.
The better-than-expected figures pushed Virgin Money shares 21¾p higher to 362p yesterday. When the bank floated in November 2014, those shares fetched 283p.
The 3,000 employees are expected to share a bonus pot of between £20 million and £30 million. However, the total package for Jayne-Anne Gadhia, the chief executive, has come down to £1.62 million, from £3.65 million last time, after her pay for 2014 was boosted by a one-off, flotation-linked bonus of £1.34 million.
Credit card balances soared by 44 per cent to £1.6 billion, ten times the overall market growth, as borrowers flocked to take advantage of Virgin’s offer of 38 months of free credit on balance transfers for a one-off fee.
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Ms Gadhia insisted that the group was not taking on excessive risk by expanding the credit book so aggressively. She said that 45 per cent of cardholders paid off their balances as soon as the interest-free period was over. Even so, profits from credit cards grew by 13 per cent to £51.2 million.
Ms Gadhia announced plans for a feasibility study into a new paid-for current account that would be an “entirely digital offering”.
A basic bank account was launched two years ago, but plans for a more mainstream account have been delayed pending an investigation into retail banking by the Competition and Markets Authority. Virgin is campaigning for serious reforms to reduce the advantage enjoyed by the big high street banks. It wants the CMA to force banks to publish details of interest forgone on balances and to introduce portability of bank account numbers to make switching easier.
Virgin said that it was prepared to move deeper into the wholesale funding market, lifting its maximum loan-to-deposit ratio from 110 per cent to 115 per cent. Excessive wholesale funding dependence was the flaw that destroyed Northern Rock, but Ms Gadhia insisted that the move was modest and prudent. “Northern Rock had a loan-to- deposit ratio of 330 per cent when it went kaput,” she said.
She noted that buy-to-let mortgage lending would remain an important source of revenue and rejected claims that the tougher tax treatment of landlords would kill the business. “It’ll reshape the market,” she said. “It may slow it down. I don’t think it will fundamentally remove the market.”
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Virgin has been slowing growth in buy-to-let lending in the past few months after warnings about the sector from the Bank of England.
A final dividend of 3.1p makes a total of 4.5p.