viewClose Brothers Group

Close Bros makes banking impairments for coronavirus, but market making booms

Having cancelled its 2020 interim dividend in April, the board pledged to consider the payment of a full year dividend in September

Close Brothers Group -

Close Brothers Group PLC (LON:CBG) reported a hit to its banking loan book and asset management inflows from the coronavirus pandemic in the past quarter but a strong performance from market-making business Winterflood.

A £86.7mln bad debt charge was taken by the FTSE 250 group, mainly related to forward-looking impairment charges to incorporate the impact of Covid-19.

The bad debt ratio has risen to 2.1% for the nine months of the company’s financial year to 30 April, up from 0.9% at the half-year stage.

The banking loan book reduced by 1.2% to £7.53bn since the end of January and the net interest margin contracted to 7.7% from 7.8%, which was said to reflect the impact of the pandemic on new business and lower fee income, particularly in April.

Asset management reported net inflows of 10% in the year to date, down from 12% three months earlier.

Managed assets reduced to £11.8bn from £12.7bn over the quarter.  

At Winterflood a “substantial increase” in trading volumes were reported since the virus outbreak, recording third quarter daily average volumes almost double those in the first half.

Chief executive Preben Prebensen said the loan book is “predominantly secured and conservatively underwritten” and with strong levels of capital, funding and liquidity, the group was “well placed, both operationally and financially, to navigate this rapidly evolving environment”.

Having cancelled its 2020 interim dividend in April, the board pledged to consider the payment of a full year dividend in September.

The shares fell 4% to 1,036p on Friday morning.

Broker Peel Hunt said the update "showed predictable and, on balance, negative trends" and that the 2.1% cost of risk was high by the standards of the industry seen to date.

Analysts said that with the CET1 capital ratio rose 50bps to 13.9% in spite of the bad debt charge, "with its conservative approach to provisioning, Close Brothers remains a relatively safe haven in the sector in our view". 

Quick facts: Close Brothers Group

Price: 1102 GBX

Market: LSE
Market Cap: £1.67 billion

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