Plastic demand helps Egg crack it

ONLINE bank Egg has cocked a snook at its struggling dotcom peers, reporting that it had kept its ambitious flotation promise last year to break into profit by the fourth quarter of 2001.

The company said it moved into the black for the first time in November, thanks mostly to booming demand for its credit card. Chief executive Paul Grattan said: 'We haven't had to resort to any shenanigans to achieve the figure.'

Sceptics had suggested Egg, majority controlled by insurer Prudential, would break even only by slashing its marketing budget or putting expensive IT projects on hold.

Grattan said the November profit was struck after all costs, depreciation and tax: 'It's a bottom-line figure. It's real money.'

He also hinted that the move into profit was permanent, describing the core credit card business as a key driver of 'sustainable' profits. 'The UK business has now got critical mass,' he said. Egg shares fell 6p to 148p, though earlier they came within a whisker of the 160p at which they floated in June 2000.

The bank did not disclose the profit figure. It previously reported a loss in the third quarter of £18.4m. Egg will report results for the year to 31 December on 25 February.

Egg's achievement contrasts with almost every other dotcom that came to the market in the heady first half of last year. Most burned up capital while struggling to make sales.

Egg had acquired 129,000 more customers, mostly for its credit cards, in the first two and a half months of the fourth quarter, boosting the total number to 1.92m. The net 569,000 customers gained so far this year is higher than the 559,000 for in the whole of 2000.

Its success is largely due to aggressive credit-card marketing. Potential customers are offered six months of interest- free credit if they move their balances from a rival supplier.

Grattan said sceptics who said customers would desert as soon as the interest-free period expired have been proved wrong as 90% remained loyal. Their balances after 12 months were on average 10% higher than when they signed up. 'We've managed to attract, dare I say it, normal customers rather than people who spend all their lives studying interest rate tables in the magazines,' he said.

Grattan dismissed fears that credit quality might suffer because of the flood of new customers. Bad debts remained low and Egg's upmarket customer base was very different from that of US online credit-card supplier Providian, which recently admitted to problems with asset quality.

Credit card finder