Virgin Money (LON:VMUK) share price has retreated sharply this week as investors reflect on the company’s earnings. The stock retreated to 156p on Thursday, down by over 8.55% from the highest level this month. It has plunged by over 16% from the year-to-date high.
Virgin Money impairments
Virgin Money is a leading banking group that operates in the UK, where it serves over 6.6 million customers. The company serves both individuals and companies and provides them with banking services like lending and deposits.
Virgin Money published mixed annual financial results on Thursday. The results revealed that its net interest income jumped by 8% in 2023 to over £1.7 billion. This income jumped as interest rates in the UK continued rising.
Non-interest income rose slightly to £175 million while its statutory profit crashed by 42% to over £345 million. Its profit crashed as the company increased its impairment provisions jumped to £309 million up from £52 million in the previous year.
Virgin Money’s CET1 ratio has also retreated slightly to 14.7% from the previous 15%. Its CET1 ratio is still much higher than other banks like Lloyds (LON:LLOY) Bank and Barclays (LON:BARC).
Virgin Money also announced a new £150 million share repurchase program, bringing the year-to-date distributions to £200 million. It has now given a 5.2p full-year dividend in 2023, just 2% in 2022. In a statement, the company’s CEO said:
“With the momentum we carry into 2024, we are confident in the outlook for our business and we expect to deliver around £800m in distributions to our investors by the end of the three-year period ending in 2024.”
These results have shed light on the challenges facing UK banks as interest rates jump. While higher interest rates have led to a jump of non-interest income (NII), they have also led to challenges in the system.
For one, many people in the UK have moved their money from bank accounts to higher-yielding government bonds or gilts. At the same time, it has led to more financial pain, which explains why delinquencies have risen.
Just on Wednesday, the European Central Bank (ECB) warned the bloc’s banks to allocate more money in impairment provisions.
Virgin Money share price forecast
The daily chart shows that the VMUK stock price has been in a strong downtrend in the past few months. It has crashed below the 50-day and 100-day moving averages, which are now about to make a bearish crossover.
The stock has also formed what looks like a double-top pattern, which is one of the most bearish ones in the market. Its neckline stands at 143.35p. Therefore, the outlook for the Virgin Money share price is bearish, with the next target to watch being at 143.35p, which is about 8.38% below the current level.
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