UPDATE 2-Virgin Money appoints Moreno chairman in runup to possible flotation

* Moreno will become chairman in mid-2015

* Virgin Money IPO expected as early as Oct -sources

* H1 pretax profit 59.7 mln stg vs 13.1 mln stg

* Takes 26 mln stg charge to pay government after IPO (Adds detail, background, quote)

By Matt Scuffham

LONDON, Sept 12 (Reuters) - Virgin Money, the Britishchallenger bank partly owned by entrepreneur Richard Branson,named experienced industry figure Glen Moreno as chairman as itreported strong profit growth, putting it in good shape for animpending stock market listing.

Moreno, previously senior independent director at LloydsBanking Group and acting chairman of UK FinancialInvestments, which manages the British government's stakes inbailed-out banks, will replace David Clementi as chairman inmid-2015, the bank said.

Also serving as chairman of publisher Pearson,Moreno will become an independent non-executive director andchairman designate from January 2015.

Virgin Money, which bought nationalised lender Northern Rockin 2011, reported underlying first-half pretax profit of 59.7million pounds ($96.9 million), up from 13.1 million the yearbefore, when it made its first profit since the Northern Rockdeal. Total income rose 28.3 percent to 210 million.

"The bank's strategy has delivered sustainable, responsiblegrowth and a strong return to profitability. It is now one ofthe best performing challenger banks," Moreno said.

Industry sources expect Virgin Money, also backed by U.S.private equity tycoon Wilbur Ross, to list on the London StockExchange as early as next month.

The bank has not commented on the timing of any flotation,however it is one of a number of new British banks eyeing upstock market listings and looking to break the dominance of thecountry's "Big Four" lenders - Lloyds, Royal Bank of Scotland, HSBC and Barclays.

NEW BANKS

Other banks preparing for initial public offerings includeSantander UK (part of Spain's Santander ), Aldermore,Shawbrook and Metro Bank, while Lloyds is set to sell off moreshares in TSB, which listed earlier in the year.

The new banks are looking to pick up business fromestablished rivals who are slimming down in order to bolstertheir capital positions and meet tougher rules from regulators.

Virgin said it had taken a 26 million pound charge inrespect of a payment due to Britain's finance ministry should itsuccessfully float the business between 2012 and 2016.

The arrangement was part of the terms of its acquisition ofNorthern Rock. The amount payable to the Treasury varied on asliding scale between a maximum 50 million pounds at the startof 2012 to nothing from 2017 onwards.

Virgin Money, which was Britain's third-biggest net mortgagelender last year behind Barclays and Nationwide, said there hadbeen a 3.7 percent increase in its gross mortgage lending tomore than 20 billion pounds.

The bank also said it was on track to launch a credit cardbusiness in the second half of 2014 and hoped to grow the creditcard book to 3 billion pounds within five years.

The bank said its performance benefited from growth in itsnet interest margin (NIM) - the difference between the interesta bank lends at and what it pays to savers - to 1.43 percentfrom 1.1 percent the year before.

Virgin Money said its core Tier 1 ratio, a key measure ofits financial strength, was 14.4 percent. The PrudentialRegulation Authority has set a minimum requirement of 7 percentbut is expected to demand 11 percent in future.

(1 US dollar = 0.6163 British pound) (Editing by Simon Jessop and David Holmes)