Ann: CYBG PLC Third Quarter 2019 Trading Update, page-128

Speaking of margin compression for CYBG, I do wonder if there's been a hit to both volumes and margin in its mortgage lending business. In the latest update, they've reported surging credit card and unsecured lending, but a decrease in mortgage lending. So they have done more high risk, higher interest lending (unsecured lending) but less low risk lending (mortgages).

Yet net interest margin is guided to the bottom of the initial guidance range. In this situation, shouldn't the difference between interest earned and interest paid be greater, ie, net interest margin should be higher, not lower than originally anticipated?

I suspect you’re right, on your first point. NIM updated guidance at the bottom of the previously guided range is likely to be a consequence of mortgage rate compression not being compensated by an increase in mortgage volumes (which hasn’t occurred), and only partially offset by an increase in credit card and unsecured lending.

The good thing, from the perspective of a buyer at today’s price, is that (if the above is indeed the case) the mortgage margin compression is then already (at least partially) embedded in the current NIM guidance; therefore, any further downward revision due to ongoing margin compression is unlikely to be dramatic.