Brewin makes £2.5m provision for potential split-cap liabilities

Brewin Dolphin, one of the stockbrokers at the centre of the split-capital investment trust fiasco, yesterday said it had made a £2.5m provision for potential compensation payments for mis-selling the controversial funds.

The company admitted that it might have mis-sold split caps to a number of clients, saying it has so far received 800 complaints.

Announcing a 40 per cent slump in profit for the full year, Brewin said that there may be some grounds for compensation in "fewer than 5 per cent of cases reviewed".

A number of stockbrokers and fund managers are the subject of an investigation by the Financial Services Authority to establish whether individuals at some companies were part of a "magic circle" who bought into each other's split-cap funds in a bid to artificially inflate the price.

John Hall, the chief executive of Brewin, said the sickly state of the split-cap industry was "ghastly" as the plummeting share prices of the trusts have lost Brewin's clients £35m so far.

"People here are incandescent. They thought they were putting forward perfectly sensible suggestions to clients, just as they have done for many years," Mr Hall said.

He denied that Brewin took part in the alleged magic circle, saying: "If there was one I have not got any evidence for it."

Split caps, a form of investment trust which contains different types of shares, have collapsed spectacularly in the past year as falling asset prices have hit the highly geared funds particularly hard.

Brewin has come under fire for its involvement with the industry as it has earned fees from both acting as broker for six split caps since the late 1990s and from piling many of its private clients into the funds.

The brokerage has particularly close connections with the split-cap sector as one of its advisors, the high-profile City figure, David Thomas, actively promoted the sector in the second half of the 1990s, when money poured into splits as the stock market soared.

Mr Hall said in the context of the split-cap problems and "damned difficult stock markets", he was pleased that Brewin returned a profit of £10.5m in the 12 months to 27 September.

He said he was optimistic that the FTSE 100 is stabilising at about the 4,000 mark and could "go ahead from there". Brewin's shares rose 14 per cent to 41.5p.