Liquidity Issue
17th October 2018
The merging of CYBG with Virgin Money appears to have resolved the liquidity issue detailed below, much to the relief of mis sold CYBG TBL customers waiting to receive their damages. It is a shame that Virgin shareholders will be sharing the cost, given that they trusted the retiring Virgin Money CEO to make sure that this issue was sufficiently investigated.
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Pillar III disclosures 2017 :-
Exposures section 3 page 18
As part of the demerger from NAB in 2016, NAB and the Group have entered into a Conduct Indemnity Deed where NAB has agreed to provide the Group with an indemnity in respect of certain historic liabilities relating to conduct in the period prior to the demerger date. Details of the Conduct Indemnity Deed are included in note 3.14 in the Group’s Annual Report and Accounts. There continues to be a great deal of uncertainty and significant judgement is required in determining the quantum of conduct risk-related liabilities with note 3.14 in the Group’s Annual Report and Accounts reflecting the Group’s current position in relation to redress provisions for payment protection insurance, interest rate hedging products and other smaller historic conduct matters. The final amount required to settle the Group’s potential liabilities for these matters is materially uncertain. The Group will continue to reassess the adequacy of provisions for these matters and the assumptions underlying the calculations at each reporting date based upon experience and other relevant factors at that time.
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CYBG Annual Report & Accounts 2017 :-
Conduct Indemnity Deed section 3.14 page 221
The Group’s economic exposure to the impact of historic conduct related liabilities is mitigated by a Capped Indemnity from NAB. The Company and NAB have an agreement under which NAB has provided the Company with a Capped Indemnity to meet the costs of dealing with conduct matters related to products sold in the period prior to the date of the Group’s demerger from NAB (the Conduct Indemnity Deed). The legacy conduct matters covered by the Capped Indemnity are referred to as Relevant Conduct Matters. The Capped Indemnity provides the Group with economic protection against certain costs and liabilities (including financial penalties imposed by a regulator) resulting from conduct issues relating to: a) PPI, standalone interest rate hedging products, voluntary scope tailored business loans and fixed rate tailored business loans; and b) other conduct matters, subject to certain limitations and minimum financial thresholds. Amounts payable under the Capped Indemnity include, subject to certain limitations, payments to customers to satisfy, settle or discharge a Relevant Conduct Matter and the direct costs and expenses of satisfying, settling, discharging or administering such Relevant Conduct Matter. It has been agreed that NAB will meet 90.3% of Qualifying Conduct Costs claimed by the Company, up to the amount of the Capped Indemnity. Claims under the Capped Indemnity are recognised in the consolidated income statement simultaneously with the charge for Relevant Conduct Matters. The conduct expense and associated reimbursement income are presented net within Other operating and administrative expenses. A reimbursement receivable is recognised on the consolidated balance sheet within Due from other banks; this receivable is periodically settled by NAB. The reimbursement receivable is not offset against the provision amount on the Group’s consolidated balance sheet. The provision expense and reimbursement income are disclosed above. No reimbursement income or receivable is recognised on the consolidated balance sheet in relation to contingent liabilities for Relevant Conduct Matters. Any possible future reimbursement income linked to contingent liabilities in respect of Relevant Conduct Matters is not disclosed as a contingent asset as the amounts cannot be reliably estimated and are not virtually certain to be received. To the extent that it is no longer probable that provisions for a Relevant Conduct Matter previously raised will be required to settle conduct obligations and a provision for a Relevant Conduct Matter is released as unutilised, the related Capped Indemnity amounts received will become repayable to NAB. Should the Qualifying Conduct costs exceed the Capped Indemnity, any excess cost will be borne by the Group. To the extent that tax relief is expected in relation to provisions for which reimbursement income is applicable, amounts may become repayable to NAB. In the consolidated financial statements, deferred tax assets are only recognised in respect of the loss share proportion (9.7%) of unused tax losses on Relevant Conduct Matters, on the basis that the Group does not obtain the economic benefit of the future tax relief which is repayable to NAB.
section 3.14 page 222
3.14 Provision for liabilities and charges continued.
The utilisation and undrawn balance of the Capped Indemnity is set out below :-
Conduct protection £m
Conduct protection provided by NAB 1,700
Capital injected into CYBG prior to demerger (1) (120)
Drawn in the period to 30 September 2016 (2) (898)
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Undrawn Conduct Indemnity as at 30 September 2016 682
Drawn in the year to 30 September 2017 (171)
Amount to be drawn relating to the year to 30 September 2017 (363)
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Undrawn balance as at 30 September 2017 148
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26th November 2018
Page 215 :-
Conduct Indemnity Deed The Group’s economic exposure to the impact of historic conduct related liabilities was mitigated by a Capped Indemnity of £1.7bn from NAB. The full amount of the remaining Capped Indemnity was drawn down in the current year. The Company and NAB had an agreement under which NAB provided the Company with a Capped Indemnity to meet the costs of dealing with conduct matters related to products sold in the period prior to the date of the Group’s Demerger (the Conduct Indemnity Deed). The legacy conduct matters covered by the Capped Indemnity are referred to as Relevant Conduct Matters. The Capped Indemnity provided the Group with economic protection against certain costs and liabilities (including financial penalties imposed by a regulator) resulting from conduct issues relating to: a) PPI, standalone interest rate hedging products, voluntary scope tailored business loans and fixed rate tailored business loans; and b) other conduct matters, subject to certain limitations and minimum financial thresholds. Amounts payable under the Capped Indemnity included, subject to certain limitations, payments to customers to satisfy, settle or discharge a Relevant Conduct Matter and the direct costs and expenses of satisfying, settling, discharging or administering such Relevant Conduct Matter. It was agreed that NAB would meet 90.3% of Qualifying Conduct Costs claimed by the Company, up to the amount of the Capped Indemnity. Claims under the Capped Indemnity have been recognised in the consolidated income statement simultaneously with the charge for Relevant Conduct Matters. The conduct expense and associated reimbursement income have been presented net within Other operating and administrative expenses. The provision expense and reimbursement income are disclosed above. Now that the Qualifying Conduct Costs have exceeded the Capped Indemnity, any costs in excess of the amounts currently provided will be borne by the Group. To the extent that tax relief is expected in relation to provisions for which reimbursement income is applicable, amounts may become repayable to NAB. In the consolidated financial statements, deferred tax assets are only recognised in respect of the loss share proportion (9.7%) of unused tax losses on Relevant Conduct Matters, on the basis that the Group does not obtain the economic benefit of the future tax relief which is repayable to NAB. The utilisation of the Capped Indemnity is set out below :-
Conduct protection provided by NAB 1,700
Capital injected into CYB Investments Limited (CYBI) prior to Demerger(1) (120)
Drawn in the period to 30 September 2017 (1,432)
Undrawn Conduct Indemnity as at 30 September 2017 148
Drawn in the year to 30 September 2018 (148)
Undrawn balance as at 30 September 2018 –