CYBG ups medium-term financial guidance

CYBG, the holding company of the Clydesdale and Yorkshire Bank, has hit its targets for the first year since flotation and upped its guidance for loan growth and cost-cutting for the next three years.

The FTSE 250 bank said it expects the promised double-digit return on tangible equity will arrive one year earlier than planned, by September 2019, and now expects in the same year to deliver mid-single-digit annual loan growth.

For the current year, with loan growth and capital expected to be in line with prior guidance, management said net interest margin for the year to 30 September 2016 would be "broadly stable" compared to last year and that underlying operating costs will be no more than £730m.

CYBG, which was spun off from recent parent National Australia Bank in February, said it expected to hit these marks even with an assumption of a 0% base rate through the next three years, national economic growth of 1-2% and house price inflation of 0.5-2%.

"The group also confirms that its dividend ambition remains unchanged, targeting a modest inaugural dividend with respect to FY2017 with a longer term goal to pay-out up to circa 50% of earnings - after paying AT1 distributions," said chief executive David Duffy in a statement ahead of the bank's capital markets day.

In order to deliver these targets Duffy is targeting more than £100m of cost reductions over the next three years, on top of the cost savings already delivered this year although they come with pre-tax restructuring costs of roughly £200m.

For the coming financial year, the group expects net interest margin again be "broadly stable" compared to this year and that underlying costs will be £690m-£700m.

Loan growth fir 2017 is expected to be in line with the new medium-term guidance, with a loan to deposit ratio of less than 120%, an increase due to the expected participation in the Term Funding Scheme provided by the Bank of England.

The CET1 capital ratio is expected to be 12% to 13%.

"We have refreshed our strategic plan, taking into account revised expectations for the UK economy," said Duffy.

"Our strategy is unchanged. We will continue to support our customers, invest in our business, and remain focused on delivering enhanced returns for shareholders.

"We firmly believe that our size and scale, strong funding base and balance of assets across retail and business lending give us a solid foundation - enabling us to simplify and grow our business, reduce costs and increase capital efficiency, notwithstanding more complex market conditions."

Shares in the company, which have risen from their 180p IPO price to above 280p in mid June, were down 3.6% on Tuesday to 262.1p.