Close Brothers profit takes a 90 per cent hit following £100m Novitas write off
Close Brothers half year profit slumped as the bank set aside over £100m for bad loans relating to legal finance specialist Novitas.
As a result of the provisions the London-based merchant bank’s adjusted operating profit fell 90 per cent to £12.6m during the six months ending January 2023.
Close Brothers signalled to the market in January that it would have to set aside significant amounts to cope for losses at Novitas.
In total, the bank recognised provisions of £114.6m in the first half, taking the overall credit provisions against Novitas to £183.2m.
It said it was confident that this level of provisions “adequately reflects the remaining risk of credit losses for the Novitas loan book” and it is now focused on maximising the recovery of remaining loan balances.
Close Brothers acquired Novitas in 2017. In 2021 Close Brothers ceased approval of new loans from Novitas and let existing loans run off.
CEO Adrian Sainsbury noted “it has been a challenging six months, with our half year results significantly impacted by the increased provisions in relation to Novitas”.
Excluding Novitas, Close Brothers saw “good demand and strong margins” in its banking division.
Income grew five per cent, helping pre-provision adjusted operating profit to increase five per cent to £177.2m. The bank also said underlying credit remained resilient.
However, Close Brothers reported a rise in arrears in motor finance and put more aside in provisions to take into account the weaker macroeconomic outlook
Elsewhere, Winterflood’s performance continued to be impacted by the wider market slowdown, resulting in a 73 per cent fall in profit. Winterflood focuses primarily on trading.
The bank announced a dividend of 22.5p per share for the period, up from 22p last year.
“We are encouraged by the good demand and strong margins seen in Banking, as well as the underlying credit quality of our loan book. We continued to attract new client assets in CBAM (Close Brothers Asset Management, with healthy net inflows, and although trading activity remained subdued at Winterflood, WBS (Winterflood Business Services) sustained its positive momentum,” Sainsbury said.