Clydesdale Bank (ASX: CYB) tumbles on a soft FY18 result
Stock
CYBG Plc (ASX: CYB) $3.59 as at 21/11/2018
Event
The spin-off from NAB’s UK arm CYBG (ASX: CYB) has plummeted today following a disappointing result overnight. The stock slumped in UK trade, and the local ticker has tracked it lower today, falling by around 20%.
So what was so bad? The stock had already fallen 29.6% from its 52-week high ahead of the result on BREXIT concerns, and it is now trading 43% below that mark set in August.
The problems stem from a number of fronts within the business, but first and foremost, the bank has an income problem, struggling to grow the pile over the past few years.
Mortgages aren’t growing, and if anything, received interest rates are edging lower. On the other side of the ledger, the bank has struggled to grow deposits which is a banks cheapest source of funding.
Mortgages have increased £2.8B over the past 2 years, while deposits grew just £0.5B forcing Clydesdale to turn to the more expensive wholesale market for funding, further squeezing the net interest margin (NIM).
Another big problem is the banks efforts to cut costs. The long story of this trade is that CYBG had plenty of ‘fat on the bone,’ or costs to cut helping improve profitability. This result showed the costs being cut may just be pushed into a capitalised costs figure, extending current costs into future years – a total £73M were capitalised in FY18.
The final string to the selling bow was further provisions being made for remedies to previous insurance products, something that has plagued the bank and one of the many reasons NAB let go of the UK arm a few years back.
A bleak story to read no doubt, but where do you find value in CYBG?
CYBG Plc (ASX: CYB) Chart
Market Matters Take/Outlook
