Arbuthnot Banking Group’s chairman on Thursday complained of a “parallel universe” caused by accounting rules after the company reported a net loss of £7m despite strong profit growth from continuing operations.
The group agreed to sell its lossmaking securities arm to Westhouse for £1.9m in November. However, a combination of operating losses and an employee share scheme meant that its accounts showed a £10.2m loss from the securities business. This cancelled out rising profits at its private banking division and at Secure Trust Bank, its retail arm, which it floated in November.
Henry Angest, chairman and chief executive, criticised accounting rules which meant that Arbuthnot’s gains from selling a quarter of Secure Trust Bank at its flotation were not fully recognised in its profit and loss account.
“Sometimes I believe we live in a parallel universe,” Mr Angest said. “These same accounting rules previously allowed failed banks to show huge imaginary profits on which excessive bonuses were paid out …I can only live in hope that one day we will return to a saner world, where a spade is called a spade and where profits mean cash in the till.”
Arbuthnot reported a loss per share of 33.3p, compared with earnings per share of 25p in 2010. However, pre-tax profit from continuing operations rose 26 per cent to £5.1m, on operating income that rose from £37.8m to £45.5m.
Explaining the sale of Arbuthnot Securities, Mr Angest gave a gloomy prognosis for the small broking sector, which has undergone a wave of consolidation in the past year as stockbrokers struggle amid a weak market for capital raising and falling commission income from secondary trading.
“In the marketplace for small brokers we could see no improvement in sight and concluded that perhaps the environment may well have changed fundamentally. So we decided to cut our losses and exit this business,” he said.
Secure Trust Bank continued to grow as it took market share in small lending, taking advantage of a retreat from that area by larger retail banks. Its loan book grew 73 per cent to £155m, while customer deposits increased by 75 per cent to £272.1m. Pre-tax profit at the division, excluding the costs of its initial public offering, increased 13 per cent to £9.6m. Arbuthnot retains a 75.5 per cent stake in Secure Trust.
Arbuthnot Latham, the group’s private banking arm, doubled its pre-tax profit to £2m, with client deposits growing 20 per cent to £420m, and loans rising 13 per cent to £238m.
However, the division lost its chief executive, Dean Proctor, who left this month to join Commercialbank of Qatar. Mr Angest warned that “an increasing number” of young banking executives were leaving the country, in part due to an “anticompetitive” tax policy.
“With all the vilification being heaped upon them, it is no surprise that honest bankers …are feeling persecuted,” he said.
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