Hambros issues profits warning: First-half results expected to be halved by poor market

HAMBROS Bank became the second merchant bank in two days to issue a profits warning due to volatile bond markets, wiping 10 per cent off its share price and hauling other banks' prices down.

Following SG Warburg's profits warning on Monday, Hambros yesterday said that its first-half profits were likely to be halved to between pounds 18m and pounds 23m, against pounds 41.1m last time. Hambros blamed poor bond markets and lack of loan demand. The shares fell 26p to 225p in response.

Merchant bank shares had already been hit by Warburg's warning, and yesterday Schroders lost another 50p to 1,285p and Kleinwort Benson fell 7p to 433p. In relatively heavy trading for the sector, Warburg bounced back 11p to 580p. Warburg, Hambros, Kleinworts and Schroders have had a total of pounds 400m wiped off their stock market value this week.

The warnings follow poor first- half results from the US investment banks with big bond trading operations. The banks are expected to show heavy bond-trading losses as they report results over the next 10 days.

Sir Chips Keswick, chairman of Hambros, said that half the deterioration was due to the bond markets, which hit the bank's issuing and market-making side, together with a fall in net interest revenue due to lower interest rates.

The other half of the deterioration was due to the merchant banking business, such as corporate lending, where Hambros still has pounds 2bn in risk assets.

'We're not lending at the moment, there's very little demand and a tremendous squeeze on margins. There has been a rise in bad debt provisions,' Sir Chips said.

The chairman stressed that all divisions continued to be profitable for the six months to 30 September, and the interim dividend will be maintained. Hambros reports in November. 'This is a falling away in profits rather than any losses,' he said.

Corporate finance profits were ahead, he said, while the pounds 6bn fund management side was progressing nicely. Although bad debt provisions on the loan book had risen, there were no new provisions over pounds 2m. 'There's no black hole there,' he said.

Warburg, an integrated merchant bank with large market- making in the US style, is more exposed to trading ups and downs than the likes of Hambros, which has much smaller dealing activities alongside traditional corporate finance and banking.