Client exodus hurts Schroders as it suffers its first loss in 43 years

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The Independent Online

Schroders is to cut staff numbers by 20 per cent after profits last year fell by £240m, forcing the troubled fund manager into its first loss since flotation 43 years ago. The company blamed an exodus of clients, irregular bookkeeping, tumbling stock markets and massive private equity losses.

Pre-tax losses were £8.1m in 2001, against a £230m profit the previous year. Michael Dobson, the new chief executive, unveiled a redundancy and outsourcing programme that will remove 617 staff by the end of 2003. Mr Dobson said: "We need to tighten up the costbase. This is the low for Schroders. I'm not 'kitchen-sinking' it. There's not been enough focus in this firm. The problem has not been strategy, it's been execution."

The largest contributor to the profits decline was a £19.6m loss from the falling value of shares in the quoted Schroder Ventures International Investment Trust, after a £69m gain in 2000. Asset management profits were down £57m while redundancy and goodwill charges totalled £37.3m. Schroders also admitted miscalculating a £125m provision made when it sold its investment bank to Citigroup in 2000.

As expected, there was a £21.6m charge for an accounting foible in the year 2000 results. Jonathan Asquith, the chief financial officer, put the bookkeeping errors down to different parts of the business having been "too far apart".

Some analysts voiced concern at Mr Dobson's failure to conjure any initiatives to drive revenue growth, as opposed to merely accelerating an existing cost-cutting programme. Jon Kirk, of Fox-Pitt Kelton, said: "Dobson is clearing the decks and getting rid of any nasties so he can go forward from here. I don't think that's necessarily a bad thing to do. But even after that, the results were slightly below expectations."

Assets under management fell £19.4bn to £110bn, with net new business down £6bn while falling stock markets accounted for the rest of the drop. Retail assets under management were £11.6bn at the year-end.

Mr Dobson warned that net new business was likely to be lower in the first half year-on-year, but claimed Schroders was beginning to win back clients, benefiting from a trend already under way when he arrived in November as a replacement for David Salisbury, who lasted just 15 months in the job. Schroders axed 50 fund managers last year, and a further 75 last month. The latest cutbacks are expected to save the group £45.8m annually, but will cost £46.6m to implement.

A handful of fund managers would be among the latest redundancies, although most of the cuts would be achieved through outsourcing administrative functions. Headcount is expected to be about 2,500 by end-2003.

Mr Dobson also indicated it was looking to deploy its surplus capital on acquisitions, perhaps to buy a fixed-income business. Schroders' strategy of taking heavy weightings in equities has come under fire from certain quarters of the City, with many analysts calling for the group to diversify if its funds are to outperform. Talks were also under way on the sale of two of Schroders' international offices.

Mr Asquith, a former colleague of Mr Dobson's appointed in December, said he and the chief executive worked well together as a team because "I know too much about detail and like early starts whereas he doesn't know the detail and works late".

Sir Ralph Robins and Baron Daniel Janssen are to step down as non-executive directors at the annual meeting. The shares closed up 18.5p at 813p.

Schroders saw its shares tumble 11 per cent in January after it disclosed that profits in 2000 had been overstated by £11m and warned that 2001 profits would be below forecasts.