Balance transfers boost Egg

Internet bank Egg said today that it had moved into the black in the first half of 2005, with profits driven by strong performance in its UK credit card business.

Egg said borrowing by its UK cardholders grew by 5% in the six months to June 30 compared with the industry equivalent of 2%.

Outstanding balances grew by £191m during the period, compared with growth of £76m in the first six months of 2004, and at the end of June this year Egg's credit card customers owed a total of £3.8bn, compared with £3.1bn a year ago.

An Egg spokesman said the high rate of balance growth was a result of the bank's continued appeal to customers of other card issuers looking to transfer their balance to a lower rate.

Egg, which was the first UK provider to offer 0% deals on balance transfers, now charges new customers a transfer fee, capped at £50, a move it said had brought it in line with the rest of the industry and not deterred customers.

A five-month interest and fee-free transfer window, beginning on the anniversary of a cardholder joining Egg was also encouraging people to move their money to the bank.

Egg, which has in the region of three million credit card customers, launched in 1998 and focuses on offering credit cards and online savings accounts.

The insurance firm Prudential has a 79% stake in the bank. Last year, it said it had given up on attempts to sell its share for £1.5bn, but takeover speculation persists, with American credit card firm MBNA one of the names in the frame.

The uplift in Egg's UK card business contributed to an overall group pre-tax profit of £15m in the period against a loss of £1.7m in the same period last year.

However, a strategy to cut the number of personal loans sold, by tightening the lending criteria, saw the operating profits in the UK division of the business fall, from £35.8m in the first half of 2004 to £23m this year.

Reducing loans sales has meant the company has missed out on the income generated by selling associated insurance products. It has, however, also reduced the potential for bad debt and the associated costs.

Egg's chief executive, Paul Gratton, said: ""Credit quality remains strong and as expected the impairment charge reduced slightly in the second quarter and as we noted in April we expect a lower charge in the second half of the year as the benefits from the changes we made to our loans scorecard and in our collections function continue to emerge." Egg said costs had fallen by £10m, or 8%, against the same period last year, with an improving cost to income ratio.

It said that was due in part to restructuring completed in the second quarter of 2005, which had aligned costs to the group's new strategy of focusing on the UK consumer.

Mr Gratton said the company was planning to launch new products designed to help customers "benefit from managing, using and understanding their money more effectively".

"Overall, the result for the first half was in line with our expectations and we remain confident about the remainder of the year," Mr Gratton said.

Yesterday's announcement that the Office of Fair Trading (OFT) has demanded a reduction in the late payment fees charged by credit card companies may force Egg to cut its £20 default charge.

The Egg spokesman said the bank would work with the OFT but it believed its charges reflected the costs it incurred when a customer defaulted on a payment.

He added: "When you join Egg and set up an Egg card we require you to set up a direct debit to your account so it is very difficult for our customers to miss a payment or forget about it."