Close Brothers posts 'solid performance' in first 11 months

Merchant banking group Close Brothers reported a “solid performance” in the first 11 months of its financial year on Thursday.

The FTSE 250 company said a strong performance in its banking division reflected loan book growth and an improved margin, although Close Brothers Asset Management (CBAM) and Winterflood were negatively impacted by market movements.

Its Common Equity Tier 1 (CET1) ratio was 14.8% as at 30 June, compared to 14.9% on 30 April, “significantly above” the applicable minimum regulatory requirement.

In banking, the firm’s loan book increased 5% in the first 11 months of the financial year to £8.9bn, which was primarily driven by “healthy” new business volumes in commercial and high demand in motor finance, with the property book slightly down as high repayments more than offset strong drawdowns from the pipeline.

Since its third quarter trading update, the company said it continued to see “good demand and momentum” in the loan book.

The annualised year-to-date net interest margin remained strong at 7.8%, up marginally on the 7.7% it reported for the 2021 financial year, primarily reflecting the lower cost of funds.

Its year-to-date bad debt ratio of 1.2%, or 0.6% excluding Novitas, remained “stable” and included the recognition of further IFRS 9 provisions to take into account updated macroeconomic forecasts since its third quarter trading update.

“Whilst we are not yet seeing a discernible impact from the current economic uncertainty and rising inflation on our customers, we continue to closely monitor the performance of the book,” the board said in its statement.

CBAM, meanwhile, continued to attract client assets and delivered year-to-date annualised net inflows of 5% - stable with the third quarter trading update, but down from 7% at the 2021 year-end.

That, the board said, was despite the impact of volatile market conditions on wider client sentiment.

Since its third quarter update, managed assets had decreased to £14.8bn from £15.4bn, and total client assets had fallen to £16bn from £16.7bn, reflecting negative market movements.

Winterflood's performance year-to-date had been adversely affected by reduced trading opportunities following the “exceptional highs” experienced during the Covid-19 period, which was exacerbated by falling markets and their impact on investor sentiment, particularly since the third quarter update.

Close Brothers said Winterflood Business Services achieved a “strong” performance in the period, with continued growth in income and client assets.

Looking ahead, the board said the firm achieved a solid performance in the first 11 months of the year against a backdrop of rising inflation and heightened market uncertainty.

It said it was in a strong position to take advantage of opportunities, and continue delivering on its “long-term track record” of growth and profitability.

“We have delivered a solid performance so far this year despite the uncertain backdrop,” said chief executive officer Adrian Sainsbury.

“Performance in the banking division was strong as we continued to see good demand across our lending businesses and remain focused on maximising growth in each of our markets, whilst actively identifying new opportunities that align with our disciplined approach.

“While our market-facing businesses were negatively impacted by falling markets, we continued to see healthy net inflows in CBAM and remain well placed to navigate changes in the market environment at Winterflood.”

Close Brothers said it would report results for the full year ending 31 July on 27 September.

At 1110 BST, shares in Close Brothers Group were up 0.52% at 1,062.62p.

Reporting by Josh White at Sharecast.com.