Close Brothers, one of the City’s last remaining independent merchant banks, is on track for a modest rise in annual profits as a steady increase in lending helps offset a continued weak performance at its asset management arm.
The loan book at the FTSE 250 company’s banking division edged up from £2.58bn to £2.7bn in the three months to the end of April, although the figures were helped by seasonal demand for motor finance on the back of new car registrations.
Preben Prebensen, chief executive since April last year, has sought to turn round the specialist lender-cum-fund manager after Colin Keogh, his predecessor, came under pressure from shareholders after a series of failed deals.
As part of his review, the former JPMorgan banker sold the group’s struggling corporate finance advisory arm to Daiwa Securities last July and spun off a private equity business.
But the shares have underperformed the financial services sector since he took the job and some analysts have complained that the group, founded in 1878, does not communicate well with the market.
Shares in the company fell 11½p to 693½p on Friday.
At its flagship marketmaking division Winterflood, Close said that although it had struck a slightly higher average number of bargains each day than during the first half the average income garnered from each deal fell.
Winterflood proved resilient throughout the downturn as bad loans dented Close’s banking operations, although its performance slowed towards the turn of the year.
Elsewhere, Close said its asset management division had a “modest” quarter. Favourable market movements – as opposed to net inflows – helped funds under management rise from £7.29bn to £7.6bn.
Danielle James, analyst at Shore Capital, who kept a “hold” recommendation on the stock, said: “Investors may focus on sluggish progress in the asset management investment programme, preventing a re-rating.”
Jeremy Grime, at Arden Partners, said of the division: “It is a business that’s going nowhere.”
Still, Close’s banking division, which acquired in January a £94m loan book from the GMAC car finance arm of General Motors, has benefited from the retrenchment of rivals.
The company said on Friday that bad debts as a proportion of total lending, as well as the net interest margin, had held steady from the first half of the year. But it added that the bad debt ratio remained “sensitive to the economic environment”.
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