Warburg helps SBC profits rise 84%

SBC Warburg, the London-based investment banking arm of Switzerland's third-largest bank, helped power its parent, SBC, to an 84 per cent increase in profits for the first half of 1997. The booming investment banking arm became the biggest profit earner of SBC's four main businesses, with profits up 60 per cent to SFr691m (pounds 288m).

SBC made SFr1.326bn in the first half and said it expected full-year profits to comfortably exceed SFr1.7bn, though it saw earnings growth slowing in the second half. While the Basel-based bank is the smallest of the Swiss big three, it is now seen by many analysts as the best.

"This is an excellent result and compares well with the other Swiss banks," said Carlo Capaul, a fund manager at Van Vemde Portfolio Management. "If the financial markets rise further, companies like SBC will continue to profit."

The results were interpreted yesterday as good news for London as a global financial centre, as well as confirmation that SBC did a good deal when it bought the ailing SG Warburg two years ago for pounds 890m.

At that time a comment by Warburg's chairman, Sir David Scholey, that the two companies fitted "like the clunk of a Rolls-Royce door" drew widespread scepticism.

Following a failed merger attempt with Morgan Stanley, the UK's largest investment bank was in crisis. Now Warburg's powerful securities side has benefited hugely from the huge new distribution channels it has access to via SBC's global banking operations.

"SBC Warburg keeps growing, enabling Swiss Bank to fulfil its ambition to be a global investment bank," said James Alexander, an analyst at Dresdner Kleinwort Benson.

Sceptics pointed yesterday to soaring financial markets around the world this year, and questioned whether SBC Warburg's growth was sustainable. The Swiss Market Index rose 46 per cent this year, with indexes in Germany up 48 per cent and the UK up 22 per cent. The Dow Jones Industrial Average is up 23.4 per cent.

Commission income for SBC Warburg's securities operations surged with these rising markets and was the main reason for the first-half profit gain.

This year SBC Warburg bought American investment bank Dillon Read for $600m. Last month it announced a joint venture with Brunswick Investment, one of Russia's largest securities firms, and another joint venture with Long-Term Credit Bank of Japan.

Last week, SBC Warburg was named the most successful mergers adviser on cross-border transactions in Europe for the first half of the year by Acquisitions Monthly magazine, beating American rivals such as Morgan Stanley Dean Witter Discovery and Goldman Sachs.