Morningstar | CYBG’s FY18 Result Disappoints and Earnings Pressure Builds
Clydesdale management has delivered an impressive turnaround since the bank was spun out of National Australia Bank in early 2016. The high fixed cost base has been cut, and we see good prospects for improvements in operational efficiency and, eventually, return on equity, or ROE. Legacy customer conduct issues continue to disappoint, and uncertainty remains. The focus on product innovation, process simplification, cost reduction, and capital optimisation has established a solid platform for growth. The merger with Virgin Money provides good earnings upside, but the significant increase in integration risks is a concern. In addition to forecast merger synergies, there is further upside from potential revenue and funding initiatives. A strong capital position, a diversified funding base, and a high-quality loan book impress.CYBG is a holding company. Co. operates through the retail and commercial banks Clydesdale Bank, Yorkshire Bank and through the digital banking service B. Co.'s business is organized into two principal operating segments: small or medium sized enterprises (SME) Banking and Retail Banking. Through its SME franchise, Co. provides a range of lending products and services across a portfolio consisting of term lending, overdrafts and working capital solutions. Through its Retail Banking segment, Co. has a retail banking product proposition with a personal deposit portfolio. As of Sept 30 2017, Co. had a total assets of £43.23 billion and total customer deposits of £27.68 billion.
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