Close Brothers recovers from bruising start to the year while rising rates lifts fellow merchant bankers Arbuthnot
Merchant banking group Close Brothers delivered a battling update as it attempts to calm investor nerves following a poor start to the year.
In a trading update for its third quarter, Close Brothers reported that its loan book increased by two per cent to £9.2bn. This was driven by a strong new business in commercial lending as well as a slowdown in repayments in property finance.
Its year-to-date net interest margin, which measures the difference between what banks pay out and receive in interest payments, remained at 7.8 per cent.
Its asset management arm has seen year-to-date net inflows of nine per cent despite the market uncertainty.
Close Brothers reported that retail investor appetite has remained “subdued” which has impacted the performance of Winterflood, which primarily focuses on trading. However, the group noted that there were no loss days in the quarter.
“Winterflood has a long track record of trading profitably in a range of market conditions and remains well positioned to take advantage when investor confidence recovers,” the bank said.
Shares in the FTSE250 firm were down 0.4 per cent in morning trading.
The update comes after a bruising start to the year. At its half year results in March, the firm set aside £100m to cover bad loans from legal-finance specialist Novitas, dragging its adjusted operating profits down 90 per cent to £12.6m.
Close Brothers gave no new update on the Novitas loans, but reaffirmed its belief that the provisions “adequately reflect the remaining risk”.
Steve Clayton, head of equity funds at Hargreaves Lansdown said: Today’s update is the first in a while not to bring new bad news from Novitas and the market may well be relieved. The core banking operations are in rude health and Close Brothers’ balance sheet has long been the envy of many other bankers.
Chief executive Adrian Sainsbury said “we are well placed to make the most of opportunities in the current environment” following a difficult first half.
Fellow merchant bank Arbuthnot also delivered a trading statement for the four months of the year, confirming that it was continuing to benefit from the Bank of England’s interest rate hikes.
Deposits also grew £165m in the period “despite the turbulence in the global banking sector.” Although the cost of deposits has increased slightly, the increase is at a slower rate than the rate hikes due to its deposit blend.
Assets under management increased four per cent in the first four months of the year to £1.4bn thanks to positive inflows and market performance.
Last year Arbuthnot’s pretax profit leapt to £20m, up from just £4.6m the year before as a result of rising interest rates.