Regulator ruling on Virgin Money mortgage risk weights sees CYBG share soar ahead of takeover
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Shares in Glasgow-based Clydesdale Bank owner CYBG have today hit their highest level on record following an earlier than expected regulatory update promised to strengthen its balance sheet when it takes over Virgin Money later this year.
The Bank of England’s Prudential Regulation Authority has approved changes to the way Virgin calculates risk-weights on its mortgage book, meaning the bank will not have to hold as much capital to protect against a downturn.
Virgin said the change, announced after markets closed on Thursday, would boost its Common Equity Tier 1 ratio by more than 2.5 percentage points to about 16 per cent.
It estimated the leverage ratio was 3.8 per cent at June 30.
The development is good news for CYBG, which recently warned that its own CET1 ratio would fall below its target level before the takeover completes.
“The agreed improvements to mortgage risk-weight models will be reflected in Virgin Money’s interim financial statements which are due to be published on 26 July 2018,” Virgin Money said in a statement.
The group added that the PRA has also revealed the outcome of its 2018 Supervisory Review and Evaluation Process.
The revised Pillar 2A capital requirement, which includes fixed and variable elements, will take effect on July 5.
Virgin Money said if applied at the end of June, it would have led to a Pillar 2A capital add-on of 5.4 per cent.
In morning trading, shares rose 1.8 per cent to 399p.
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