Close Brothers confident ahead of financial year-end

Financial services company Close Brothers updated the market on the first 11 months of its financial year on Friday, ahead of its fiscal year-end.

The FTSE 250 firm said that in the banking division, it saw a 3.7% year-to-date increase in its loan book, reaching £9.4bn.

It said the growth was primarily driven by continued demand in the commercial businesses, and a robust expansion in property finance due to increased drawdowns and reduced repayments.

However, the growth in the UK motor finance and premium finance loan books was marginal, offset by the run-off of the Irish motor finance business.

Despite experiencing pressure from an inflationary environment, Close Brothers maintained a strong annualised year-to-date net interest margin of 7.7%, or 7.5% excluding Novitas, as a result of its pricing discipline.

The firm said it remained focussed on cost control, while investing in strategic programmes to support future growth.

Close Brothers said its annualised year-to-date bad debt ratio stood at 2.3%, down from 2.6% in the third quarter.

Notably, that included significant provisions taken against Novitas in the first half, which the board said it believed adequately reflected the remaining risk of credit losses for the Novitas loan book.

The credit performance remained stable since the first half, with a year-to-date bad debt ratio of 0.9% excluding Novitas.

Close Brothers Asset Management meanwhile saw year-to-date annualised net inflows of 9%, showcasing an increase from 5% at the end of the 2022 financial year, and remaining steady since its third quarter update.

Despite market uncertainty, the firm said its hiring strategy proved fruitful as new portfolio managers contributed to the overall inflow rate.

Managed assets and total client assets remained stable at £16.1bn and £17bn, respectively, as negative market movements offset net inflows.

However, the company’s trading arm Winterflood faced challenges due to cyclical trends and weak retail investor activity.

Despite that, Winterflood's prudent risk management resulted in just one loss day in the year-to-date.

The firm said it believed its experience and risk management approach would position it well to benefit when investor confidence recovers.

Close Brothers said it maintained a strong capital, funding, and liquidity position, with a Common Equity Tier 1 (CET1) ratio of 13.7% as at 30 June, compared to 14 at the end of April.

Additionally, Close Brothers strengthened its funding base with the successful issue of a £250m senior unsecured bond in June, as it maintained a prudent liquidity position, with a liquidity coverage ratio substantially above regulatory requirements.

Looking ahead, Close Brothers acknowledged the external environment's uncertainty, but expressed satisfaction with its performance in the second half.

The company said it believed its proven model and strong financial position left it in a good place to pursue disciplined growth, cost efficiency, and capital optimisation, ultimately aiming to resume its track record of earnings growth and returns.

“We have performed well in the second half of the financial year, maintaining the loan book growth momentum, strong net interest margin and stable credit performance in banking reported at the third quarter,” said chief executive officer Adrian Sainsbury.

“Close Brothers Asset Management continued to attract client assets and delivered a strong net inflow rate, although Winterflood's performance remains impacted by subdued trading activity.

“We are seeing good demand in our Banking business and are making the most of the opportunities, notwithstanding the uncertain external environment.”

Sainsbury said the company was continuing to support its customers and clients, maintaining its consistent approach to lending throughout the cycle.

“Our financial strength and proven business model leave us well placed and I am pleased with our progress towards resuming the group's track record of earnings growth and returns since the first half.”

Reporting by Josh White for Sharecast.com.