Investec sees upgrades as profits grow

ANALYSTS upgraded South African lender Investec after its full-year results for the year to March yesterday, despite the bank taking an unexpected hit from a rise in impairments in its private bank, which posted a loss of £91.4m.

The bank’s managing director Bernard Kantor told City A.M.: “The problem was Ireland. We wrote off £97m there as opposed to last year’s £49m.” He added: “The bigger deals in Ireland caused us some concern. But we honestly think we have peaked and impairments are from now on going to normalise, the sooner the better.”

Regarding the prospect of future write-downs, Kantor said: “It depends what happens with Ireland and the oil price. Whilst we think we have provided what we should have, we live in a volatile world, so who knows?”

Despite the private bank’s shock loss, Investec’s other five divisions all posted strong rises in earnings. Overall pre-tax profit rose 13.6 per cent to £466.4m. Its asset management business saw operating profit jump 52.6 per cent to £127.3m on net inflows of £7.4bn during the year.

The greatest rise in earnings was in the investment bank, where proprietary investments and “a good deal pipeline” drove operating profit up 62.1 per cent to £67.4m.

However, the bank’s costs were hit by currency fluctuations, bonus costs, growing headcount and several acquisitions, including that of Rensburg Sheppards Investment Management. Its cost-to-income ratio rose from 57.8 per cent last year to 61.7 per cent, though was still below the bank’s target maximum of 65 per cent. Despite the rise in costs, the bank delivered an 11.2 per cent return on equity.