Close Brothers powers ahead on volume rise

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Financial Editor

Strong volume growth at sustained profit margins powered a sharp rise in interim earnings at Close Brothers, the merchant bank specialising in medium-sized companies. The bank said yesterday it will be investing heavily in corporate finance and fund management to build up the third leg of business alongside specialised loan financing and market-making in small and medium-sized stocks.

Profits before tax during the six months ended 31 January 1996 rose by 32 per cent to pounds 21.7m. With bad debt provisions up in percentage terms on the same period the previous year, even though at a low level in the cycle, the earnings growth was driven mainly by better volumes.

"The whole loan book grew by 22 per cent last year because the economy is doing well and we have been maintaining margins," said Rod Kent, managing director.

The interim dividend was increased by 12 per cent to 3.2p net. Earnings per share rose by 15 per cent to 12.64p. "It has been an absolutely splendid performance," Mr Kent said. The results follow on from Close Brothers' pounds 53m rights issue in October, which increased the capital base by 50 per cent.

Michael Morley, chairman, focused on corporate finance as a key area for organic growth. "We see considerable opportunities for expansion of our activities amongst medium-sized UK quoted companies, at a time when many other merchant banks are concentrating on larger companies."

The bank is also building up its investment management capability, and is considering moving into private client investment. Specialised lending against assets to British companies accounts for 44 per cent of profits. By specialising in narrow areas, such as printing equipment, and concentrating on high-quality assets the group had kept bad debts low, Mr Kent said.

Profits from market-making by Winterflood Securities, headed by Brian Winterflood, virtually doubled to pounds 7.3m, or 34 per cent of the total.

Costs increased by 1.1 per cent as a percentage of operating income despite the strong investments. Mr Kent said that although the merchant banking sector as a whole was undergoing consolidation, Close Brothers is determined to pursue an independent strategy and was not seeking interest from other firms. Close Brothers shares closed down 11p yesterday at 379p on profit- taking.