Cazenove result 'worst in a generation'

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Cazenove, the blue-blooded investment bank, yesterday unveiled a 77 per cent slump in pre-tax profits to £14m and called the result the group's worst "in a generation".

The City stockbroker, whose clients include the Queen and a host of major companies, said cost cutting last year had been aggressive but still not of the magnitude to cope with a 40 per cent decline in revenue in the past two years.

David Mayhew, the chairman, said the combination of "continuing economic and major political uncertainty, during the third year of a bear market" had made the year to 30 April "the most difficult for our firm in a generation".

While the entire investment banking and stockbroking community has suffered significantly in the past few years, bulge-bracket banks such as Goldman Sachs and Citigroup have boosted revenues through their large fixed income and proprietary trading desks.

Robert Pickering, chief executive, said it should come as "no surprise" to investors that the group had a far rougher time because it does not do much business in the debt markets. "Our business is equity issuance, merger and acquisitions and fund management, at a time when markets have been down 25 per cent, equity issuance is off 50 per cent and M&A is down 21 per cent. It is about as bad a backdrop for our business as you can get," he said.

Cazenove's reputation as the pre-eminent broker to FTSE 100 companies has been knocked in recent months, mainly because of its failure to get its own float away in April.

While most agree Cazenove could not have foreseen how dire the stock market was going to be when it said in November 2000 that it intended to end 178 years of being a partnership, many in the City believe it has handled the project poorly.

One banker said: "I don't think they would have advised one of their clients to act like this - they should never have announced what they were going to do before they were all ready to go. It looks naïve."

Senior figures in the broking world say Cazenove still has a strong reputation, but it lost the business of Reckitt Benckiser last week when the household goods giant said it was replacing it as joint broker with ABN Amro. The change happened after Reckitt asked some banks to take part in a beauty parade.

Following its announcement earlier this year that it could not say when it would come back to the market with a plan to float, Cazenove said it would launch an internal market in its shares on Friday. This will enable employees, who own more than half of its stock, to sell it and others can buy it.

The price is likely to be about £2 a share, compared to the £5 when the group incorporated, in April 2001. At the time the business was valued at £1.1bn.

Cazenove said the deficit in its final-salary pension scheme widened to £43m under the new FRS17 accounting standard. This was largely due to share price falls, Cazenove said. It may have to raise its contributions to the scheme after a review next April.