Analysts said the results confirmed Schroders' position among the most successful of the City's merchant banks since the 1986 rule changes known as Big Bang. Robert Fleming is cited as another.
But the strength of the Schroders balance sheet enabled it to announce a 1994 dividend up by nearly a quarter to 20.5p with the payment still covered five times. The bank also announced a one-for-two bonus issue of shares aimed at reducing its share price, making the shares more marketable. The new shares will be issued, subject to shareholder approval, on 1 May.
The market was impressed by the figures and Schroders' shares rose 38p to 1,478p.
Despite Barings' problems in the securities field, Schroders is determined to expand its own securities operations. It signalled this by making a high-profile appointment, recruiting Philip Augur, until now head of global equities and fixed income at NatWest Group's investment banking arm NatWest Markets, as group managing director of Schroders' securities operations.
George Mallinckrodt, chairman, and Win Bischoff, chief executive, said yesterday that they were acutely aware of the attractions and dangers of moving more heavily into securities.
Mr Bischoff said : "We have a strong preference to grow things internally. We are keen to grow our securities side in quality, not quantity, so that it complements our corporate finance operations."
The chief executive refused to rule out an acquisition, however, saying: "We never comment on market rumours."
Schroders needs to strike the right balance between corporate finance, asset management and securities. The latter contributed 18 per cent of the bank's headcount last year, a share that Mr Bischoff said would creep up to about 20 per cent.
It was important for Schroders not to build "a securities machine with a life of its own". Therefore the bank's strategy would be to add securities operations where they complemented corporate finance activities around the world, Mr Bischoff said. Analysts applauded the increasing quality of Schroders' earnings, despite pre-tax profit remaining flat at £195m. Phillip Gibbs, of BZW, said: "This was a good set of figures in circumstances of incredibly difficult markets. Schroders has a low exposure to trading and securities and a good fund management side."
The fund management business sparkled last year, contributing £85.4m against £56.8m last time. It also piled on 9 per cent more funds under management, taking it to a total of £57.6bn, making Schroders one of the fastest-growing big fund managers in London.
Mr Mallinckrodt says the total has grown to £60bn since the beginning of the year. Crucially, much of this is pension fund money, which delivers a quality stream of regular profits.
The quality of Schroders' earnings was underlined by 75 per cent of revenues coming from fees and commissions, analysts said. More than half came from outside Britain. Schroder Wertheim, the Wall Street arm, contributed £83m to operating income. Schroders' dealing income fell from £61.5m to £37.9m due to the combined impact of the US rate rise last spring, the emerging markets downturn and the Mexican peso crisis. Taking these into account Mr Mallinckrodt said the performance was satisfactory.
Staff costs rose by a half, reflecting the acquisition of Schroder Wertheim last year. Profits from the venture capital arm fell from £18m to £12m.Reuse content