Virgin Money is still stuck uncomfortably in the middle and it shows

What is Virgin Money for? 

Defining that sometimes seems to be the central challenge facing this “challenger bank”. 

Its issues were there for all to see in the latest results, and the shares slipped, albeit after a very strong recent run. 

True, Virgin Money is making money again for the first time since 2019, which is genuinely good news given how messy we know things can get when banks don’t do that. 

But a big part of the positive result came through bad loans not going bad, a feature common to all the recent numbers reported by banks. Set that to one side and the underlying figures don’t look quite so good. That was certainly the view in parts of the City, where words like “mixed bag”, even “sell”, weren’t hard to find. 

Revenues fell, and the mortgage business trod water. (The explanation is that the bank was and is being cautious, and I suppose that could look wise depending on how the pandemic pans out.) Costs were far higher than expected, although better news is promised on that front. 

The cheerier part of the mix is that margins held up. The bank has also been picking up new current account customers at a fair clip. It’s very keen to talk up the bells and whistles it’s offering to tempt customers going forward. 

A push into business banking is being similarly touted, as is Virgin’s attempts to make more of a noise in the digital space, something every bank worth its salt wants to do given the excitement created by new(ish) entrants with silly names. One of them, Starling, is picking up current accounts faster than Virgin. Another, Monzo, isn’t far off. 

The proposition seems to be: “We can do the whizzy stuff like they do but we’re a proper full service bank too.” By contrast, the main selling point for investors remains the potential for ripping out costs – which isn’t happening as quickly as they would like. 

Cost cutting doesn’t always work out so well for customers either. Virgin wants to lure them away from the big four with the promise of a better service and the idea that it’s somehow “different” from them. But how different is it really? 

Virgin Money’s chief executive, David Duffy, certainly talks a good game. He didn’t come unstuck when I lobbed some sceptical bricks in his direction. However, when the bank was created through the acquisition of the old Virgin Money by CYBG (the Clydesdale and Yorkshire Bank), which took on its target’s brand, Duffy told the BBC’s Today programme that the bank would become “a competitor of scale”. 

That’s something Virgin Money has a long way to go to achieve. The new current accounts are nice, and there are other areas it could look for growth in. But it isn’t scaring the big four. It isn’t even close. 

This brings us to the tail end of last year, when Virgin was rumoured as a potential bidder for TSB, which had been put up for sale by its owner, Sabadell. The process was put on hold ahead of the presentation of a new strategic plan by the Spanish bank’s new boss at the end of this month. 

He faces some challenges in the wake of the failure of Sabadell’s planned merger with its larger rival BBVA. Given that TSB never really made much sense under Sabadell’s umbrella before the IT foul-up that locked some customers out of their accounts and cost the bank millions to fix, maybe the process will be reheated. 

TSB might make more sense bolted together with Virgin; that would fit with Duffy’s desire to create a competitor of scale. But even if he can pull that or another deal off, his bank will probably still be left stuck in the middle. There will be another bunch of costs he could rip out, but caught between lumbering giants and nimble new kids is always going to be a tough place from which to operate a bank.