Virgin Money UK has reported a lower-than-expected full-year underlying profit and suspended its dividend, as the lender set aside more money to settle a payment protection insurance mis-selling scandal in Britain.
The owner of Clydesdale and Yorkshire Bank said underlying pretax profit dropped 7% to £539m for the 12 months ended September 30.
This was below the £544m predicted by analysts, according to a company-supplied consensus.
The company, formerly known as CYBG, emerged as UK's sixth-biggest lender after it bought Richard Branson-owned Virgin Money last year.
It has since bet on re-branding and growth in business banking to challenge bigger rivals Lloyds, Royal Bank of Scotland and Barclays.
However, in its first full results as the merged entity, the bank said it took £385m more in provisions to settle claims relating to the mis-selling of payment protection insurance (PPI) in the last quarter.
The PPI saga has already cost UK lenders billions, but a surge in last minute claims ahead of an August deadline has ratcheted up costs further.
"Our statutory result was significantly affected by additional PPI provisions, driven by the unprecedented surge in PPI information requests in August," the bank's chief executive David Duffy - a former CEO at AIB - said.
Net interest margin - the difference between what banks earn from loans and pay for deposits - fell to 1.66% from 1.78% on the back of stiff competition in the industry.
The company said it expects net interest margin for the current year to be around 1.60% to 1.65%.
Virgin Money UK still reported a 4.6% growth in deposits to £63.8 billion, as lending to businesses helped offset a slowdown in the mortgage market.
