Bad debt fears take gloss off Egg's profits

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A jump in provisions for bad debts overshadowed a better-than-expected profit performance for 2004 at Egg, sending the internet bank's shares lower yesterday.

A jump in provisions for bad debts overshadowed a better-than-expected profit performance for 2004 at Egg, sending the internet bank's shares lower yesterday.

Egg, which has offloaded its loss-making French operations to concentrate on Britain, unveiled operating profits of £74m for the year to the end of December at the UK business, compared with £73m the previous year. That comfortably beat the analysts' consensus forecast of £69m. The group posted a pre-tax loss of £106.7m, including losses and provisions from its French unit of £148m.

However, there was concern in the City that Egg's provisions for bad debts had risen 44 per cent to £182.4m - while other banks such as Barclays and Standard Chartered have reported falls in their bad debt charges. Paul Gratton, Egg's chief executive, said the increase was not surprising as lending was up 30 per cent and the business mix had changed. Egg sold fewer mortgages, which attract smaller provisions, and focused on cross-selling personal loans and general insurance to its core credit card customers amid tough competition in the credit card market. The debt charge on personal loans worsened to 6.2 per cent of lagged assets - a rate that analysts called "alarming" and predicted could well get worse in coming months. But Egg vowed to tighten its lending criteria for personal loans - which will slow income growth - to bring the rate down.

Egg is majority-owned by the insurer Prudential, which last August abandoned efforts to sell it after seven months of searching for a buyer. The shares have risen in the past three months on fresh bid speculation. Mr Gratton said: "If someone walked into the Pru and offered a large cheque, [the chief executive] Jonathan [Bloomer] would have to deal with it, but we are focused on running the business."

He was confident of maintaining double-digit revenue growth this year as the bank broadens its range to include products such as home insurance. Egg's exit from France will be completed within the next couple of months, and the associated costs are in line with its previous estimate of £113m.

The shares closed down 1.75p at 113.25p.