Close Brothers shares fall on subdued trading update
Shares in UK merchant bank Close Brothers have dropped after a trading update showed economic weakness taking a toll on its banking division and it said that costs are likely to grow.
The update – which covered the five months to 31 December – said the lender’s loan book remained flat, while modest growth in its commercial arm was offset by a decline in the property business.
London-listed Close Brothers said that “costs are expected to continue to grow” in the coming year as it invests in “strategic initiatives to protect and grow our business”.
Shares were down 4.8 per cent by midday to 1,491.7p.
Close cited a “a difficult UK economic environment” and said that “there remains uncertainty about the economic outlook”.
Shore Capital Markets analyst Gary Greenwood said the subdued trading update was not “wholly unexpected at this point in the cycle given Close Brothers’ focus on underwriting discipline”.
Close Brothers is a merchant bank, meaning it acts as a lender and agent for big companies, leaving it vulnerable to economic swings.
Yet net inflows continued to grow at Close Brothers’s asset management division, aided by positive market movements.
“If such conditions continue, this may provide a counterbalance to weaker performance in banking,” Greenwood said.
Kim Bergoe, research analyst at company adviser Finncap, said: “Trading conditions have clearly been tough for Close Brothers.”
“A relatively strong balance sheet and conservative underwriting seems to be the key attraction at the moment supporting the valuation.”