Egg cracks the profits formula

AN explosion in internet banking late last year, and sharply lower marketing costs, have prompted Egg to declare its business is now 'sustainably profitable'.

Chief executive Paul Gratton said the online bank had made a profit in November and December, enabling it to cut its pre-tax loss by 43% to £87.8m, for 2001.

Much of the turnround was due to net growth in customers of 600,000, taking the total to more than two million. This underpinned a doubling in outstanding credit card balances to £1.7bn and a rise in the total loan book from £3.7bn to £4.8bn.

Gratton said the soaring credit card figures had been accompanied by a £15m cut in marketing costs, a fall of 30%. He said Egg, 79% owned by Prudential, had learned to target its advertising more effectively. It is hunting 'cosmopolitan customers' aged 25 to 44, earning at least £30,000 a year and with aspirations to save and invest.

Egg lures new customers with interest-free credit for six months, switching to 12.9% compared with a market average of 18%. Its burst into the black was also helped by a sudden surge in the portion of UK adults banking online, from 28% to 33%, in the final quarter of last year.

The combination of lower costs and a fatter loan book increased Egg's net interest margin from 0.9% to 1.9%. Charges for bad and doubtful debts grew from £37.2m to £68m, but slipped as a portion of total loans.

Egg also enjoyed success in cross-selling products, with average revenue per customer rising from £85 to £111.