Hambros disappoints City with 50% gain: Merchant bank misses out on market upsurge

HAMBROS' lack of market-making and fund management operations has cost it dear in the current merchant banking boom. Its six-month pre-tax profits of pounds 41.1m, while up 51 per cent, fell below City expectations of about pounds 50m.

City analysts were disappointed at the banking division's progress, up just pounds 3m at pounds 40.3m for the six months to 30 September, during a period when other merchant banks gained dramatically from resurgent markets. Tuesday's figures from SG Warburg, for instance, showed fees and commission up 42 per cent and profits from market-making and proprietary trading tripled. Hambros' shares fell 24p to 344p. The dividend rose from 4.2p to 4.5p.

Sir Adam Ridley, executive director, corporate communications at Hambros, said the growth in banking profits, which include treasury and capital markets, had to be set against a pounds 10m windfall due to Black Wednesday in the equivalent half last year.

The improving house market helped the retail financial services arm back into the black by pounds 1.1m after a pounds 4.9m loss last time. Hambro Countrywide's residential estate agency business returned to profit in June.

Sir Adam said: 'Prospects are better for the second half, if they're not wrecked by the Chancellor.'

Direct investments also returned to profit with pounds 4.1m against a pounds 100,000 loss last time.

There were no significant investment gains during the half year, Hambros said, but disposal of its shareholding in Telematics in October produced a pounds 9m pre-tax profit, which will be included in the second half.

Hambro Insurance Services, floated in March, made profits of pounds 3.3m compared with a pro forma pounds 4m in the same period in 1992.

Hambros' prospects are still overshadowed by an appeal brought by the state-owned Norwegian Guarantee Institute for Shops and Drilling Vessels against a court decision that rejected the institute's pounds 160m claim against Hambros. The case dates back to the 1970s and the appeal will be heard in January 1995.

Charles Hambro, chairman, said: 'Prospects for the rest of the year depend on a sustained recovery in the UK, particularly in the housing market. The coming Budget, the second this year, is therefore of particular importance in maintaining confidence throughout the country.'

Philip Gibbs, merchant bank analyst with BZW, said: 'The banking profits are a little disappointing. Bad debts fell, but profits aren't ahead a great deal.'

Overall, he said Hambros should have a better second half: 'I can see them getting to pounds 105m (pre-tax profits) even from pounds 41m.'

Martin Cross at UBS said: 'There's not much loan growth, but then it's the same for Barclays or Natwest.'

He said Hambros should make pounds 90m- pounds 100m for the full year. He also said the share fall might have been excessive. 'There are a lot of profit takers in the banking sector at the moment.'

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