Cautious approach pays off at Kleinwort

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Kleinwort Benson put years of crisis behind it to become one of the City's more impressive merchant bank performers, with a resilient profits showing in a bad year for investment banking.

Kleinwort chairman Lord Rockley unveiled pre tax profits down only 13 per cent to £97m, compared to far worse figures elsewhere. He denied Kleinwort was either looking for a merger or inclined to accept a bid: "We are not looking for suitors. We have a successful strategy and we are pursuing it."

The result was above predictions of £90m, but the shares fell 8p to 631p as the market was dissappointed by the lack of a bid announcement.

Speculation that Dresdner Bank may pursue its London strategy by linking with Kleinwort has powered the merchant bank's share price in recent weeks.

Kleinwort made a higher than expected dividend payout of 14.75p, making 21.5p for the year - up 16 per cent.

Analysts said the results were flattered by a £7m release of provisions against future costs of office space which is no longer considered surplus to requirements, and a £9.3m write-back of provisions against bad debts.

The latter reflected good work by the bank in recouping some of the poor loans it made in the late 1980s, said Lord Rockley.

The results were in stark contrast to the news from Warburg, which issued a second profits warning on Monday together with the news that Lord Cairns was resigning as chief executive. Analyst Philip Gibbs of BZW expects Warburg to a make a £1m loss in investment banking for the year to March 1995.

Kleinwort showed the benefits of cost cutting and avoiding proprietary trading, said Lord Rockley. It was determined to concentrate on advisory work which would lead to distribution spin-offs, exemplified by its privatisation work in over 20 countries.

Net dealing income slumped by 58 percent to £43.3m from £104m in 1993. This was mostly from market making, said Lord Rockley, and was a good result considering that poor markets had forced other houses into losses.

As it was, analysts say total operating income held up pretty well, dropping to £430.5m from £438.1m, helped by much better fees and commisions income. These rose by 14 per cent to £310.7m from £271.5m while net interest income rose to £78.6m from £66.6 m.

"Although markets have been unsettled, we have achieved an increased share of customer business in all the major equity markets in which we operate," Lord Rockley said.

Investment trusts, venture capital and mezzanine funds all developed "successfully" in 1994 and private banking continues to expand both its range of services and its contribution to profits.