Egg loss widens as high street banks retaliate

Shares in egg took another dive yesterday as bigger than expected losses fuelled City fears that attempts by the traditional banks to claw back market share were starting to draw blood.

Shares in egg took another dive yesterday as bigger than expected losses fuelled City fears that attempts by the traditional banks to claw back market share were starting to draw blood.

Mike Harris, chief executive insisted that yesterday's first-half loss of £80.7m was in line with internal forecasts at the time of flotation in June, adding that egg was still on course to meet the target of break-even by the fourth quarter of next year. However, the figures did little to dent City analysts' concerns that attempts by bricks and mortar banks to defend market share with loss-leading products of their own are going to make it harder for egg to meet this target.

Shares in egg, which was floated at 160p, fell nearly 5 per cent to 127.5p yesterday.

Egg's attempts to build a profitable business depend on being able to attract customers with cheap deals and then cross-sell other profitable products

"Market conditions are much tougher," Mr Harris said, "But we are much tougher too, compared with where we are when we set that target. We now have built the products. We have customers flooding in."

More than 310,000 customers had signed up over the half, taking total customers to 1.1m. The egg chief executive said that customer loyalty had remained high despite attempts to reduce losses by cutting deposit rates to more economic levels, while credit card balances were higher than anticipated.

Paul Gratton, chief operating officer said that only 20,000 deposit customers had left and most of those were old postal account customers who had decided that the internet was not for them. The credit card had now taken over from the deposit account as the main draw for new customers.

Revenue grew over the half from £17.5m to £33.2m. But costs also grew from £88.8m to £91.9m. Although operating costs have fallen from £57.4m to £50.8m thanks to a tighter rein on expenditure, brand and marketing spend nearly doubled to £23.4m.

Development spend increased from £13.6m to £17.7m largely as a result of the cost of developing egg's investment supermarket.

Egg is pressing ahead with its plans to extend its suite of products to stay ahead of the game. Having launched its online share dealing service this week, egg is now poised to launch a loyalty credit card with Boots, the high street retailer in September, and egg insure. The bank also confirmed plans to launch an electronic wallet in the autumn which will enable customers to carry virtual cash around with them across the internet.