Buy Close Brothers for exposure to financial markets

Even though regulatory costs in banking have risen and markets have yet to recover fully from a downturn, Close Brothers, the banking group, demonstrated yesterday that it can still deliver solid results.

Even though regulatory costs in banking have risen and markets have yet to recover fully from a downturn, Close Brothers, the banking group, demonstrated yesterday that it can still deliver solid results.

Asset management was the star performer in its first half, driving 17 per cent profit growth in investment banking while the mainstream banking division struggled. Profits in asset management doubled, with strong performances from the group's property funds, venture capital trusts and private equity. Colin Keogh, the chief executive, wants to build a big business in asset management. Some analysts reckon the division could overtake Winterflood, its market-making business, in overall profit contribution next year.

Corporate finance also put in a good performance, with M&A advisory revenues making the biggest contribution. The group has become a big player in European restructuring and advised on the restructuring of British Energy and Parmalat.

However, the regular banking division - which accounts for half of overall profits - was hit by increased regulatory costs and a soft market in insurance finance, and saw only 2 per cent profit growth. The group says bad debts are under control, but with the consumer finance market slowing, it is only a matter of time before they go up. Winterflood saw profits fall 15 per cent in the first half, though activity perked up in the autumn.

Trading at about 13 times forward earnings, the stock offers good value and is worth buying for the group's broad exposure to financial markets.