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Close Brothers Group PLC on Friday said it delivered a ‘resilient’ performance in its first half, but posted a weak performance from Winterflood, and warns it expects further provisions against the Novitas loan book.
Shares in the FTSE 250-listed firm were down 12% at 925.50 pence each on Friday morning in London.
The London-based merchant banking group said it saw good demand and strong margins for the five months of its first half ending January 31, though it noted that trading activity was subdued at stock broker Winterflood. Winterflood provides outsourced dealing and custody services for asset managers and platforms.
In the period, the loan book in its Banking division was up 1.5% to £9.23 billion from £9.10 billion on July 31.
This was driven by ‘continued demand in the Commercial businesses, as well as an increase in the Premium and Property Finance books, partly offset by a moderation in business volumes in Motor Finance compared to the prior financial year,’ Close Brothers explained.
Its common equity tier 1 ratio was 14.4% on December 31, down from 14.6% on July 31, above the group’s CET1 capital ratio target range of 12% to 13%.
Close Brothers Asset Management delivered year-to-date annualised net inflows of 6%, up from 5% year-on-year. However, managed assets decreased to £15.2 billion from £15.3 million on July 31. Total client assets fell to £16.3 billion from £16.6 billion, reflecting negative market movements.
Additionally, Close Brothers said Winterflood’s performance has been ‘adversely impacted by the continued market-wide slowdown in trading activity in higher margin sectors’. As a result, operating profit in the period was £1.7 million. ‘Notwithstanding the challenging trading conditions in the period, the team’s experience and focus on managing risk resulted in only one loss day,’ it added.
Close Brother added that it expects to recognise an additional provision in its interim financial statements against the Novitas loan book of up to £90 million.
In 2021, Close Brothers decided to permanently cease the approval of lending to new customers across all the products offered by Novitas and withdraw from the legal services financing market.
Chief Executive Officer Adrian Sainsbury said: ‘We have delivered a resilient performance so far this financial year, despite the uncertain market backdrop. We saw good demand and strong margins in Banking and delivered healthy net inflows in CBAM, though trading activity remained subdued at Winterflood. While our underlying credit performance remains strong, as we accelerate our efforts to resolve the issues surrounding the Novitas loan book, we will be increasing further provisions in the H1 2023 financial statements to a level that will adequately cover the remaining risk of credit losses for the current Novitas loan book.’
Looking ahead, it said it is confident in navigating the economic uncertainty.
Close Brothers will release its results for the six months ending January 31 on March 14.
By Xindi Wei, Alliance News reporter
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