This bank’s shares are deep in the red today…
The post Why the Virgin Money UK (ASX:VUK) share price is sinking 6% today appeared first on The Motley Fool Australia. –
The Virgin Money UK CDI (ASX: VUK) share price has been a particularly poor performer on Friday.
In afternoon trade, the UK bank’s shares are down 6% to $3.79.
Why is the Virgin Money UK share price tumbling?
There appear to have been a couple of catalysts for the weakness in the Virgin Money UK share price on Friday.
One is broad market weakness, which is being felt more than most in the banking sector. For example, the Commonwealth Bank of Australia (ASX: CBA) share price is down 4% at the time of writing.
Another potential catalyst for the Virgin Money UK share price weakness could be the release of an announcement after the market close on Thursday.
What did Virgin Money UK announce?
According to the release, Virgin Money UK has decided to accelerate its digital strategy in order to enable greater efficiency and drive up levels of digitisation across the bank. This is with the aim of further developing a strong, scalable platform for future growth.
This plan is going to come at a cost, though. The release explains that restructuring charges for FY 2021 are now expected to be ~GBP145 million in total with an additional ~GBP45 million booked in the fourth quarter.
Where do the new charges come from?
Part of the strategy will see the bank close almost a fifth of its branches in the coming months. Virgin Money UK has identified 31 stores out of the 162 in its network which will be closed. This is expected to cost ~GBP25 million.
The bank will also be embracing the work from home initiative. This will result in lower office space requirements, with infrastructure and office hubs re-purposed to fit new ways of working.
After applying valuation adjustments and including other operating model changes, the bank expects to incur a ~GBP20 million restructuring charge in the fourth quarter from these changes.
However, management believes these costs will be worth it in the long run.
It explained: “The Group’s digital strategy will further develop a strong, scalable platform for future growth. In the near term, cost savings from improved productivity delivered by Virgin Money UK’s digital initiatives will be reinvested into the business to further accelerate the pace of platform development. Virgin Money UK will also leverage the capabilities of its key strategic partnerships, such as those announced with Global Payments and Capita, to deliver additional features and differentiated propositions for customers.”
The Virgin Money UK share price is up 61% in 2021 despite recent weakness.
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.