Winterflood speeds Close Brothers' advance

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THE ACQUISITION last year of Winterflood Securities, the small firms specialist dealer, helped to boost the profits of Close Brothers, the merchant bank, from pounds 6.77m to pounds 16.73m before tax in the six months to the end of January.

The shares leapt 83p to 528p, with the market wrong-footed in its belief that the shake-out in equities since the new year would slow Winterflood's business. The interim dividend also rose 56 per cent and earnings per share 87 per cent.

Winterflood has been helped by the popularity of small companies among investors and decisions by many larger securities firms to concentrate on the biggest quoted companies. The number of stocks traded by Winterflood has risen by 110 over the past year to 1,150.

Winterflood contributed 40 per cent of Close Brothers' pre-tax profits in its first full half-year since it was sold to the merchant bank by Union, the discount house.

Rod Kent, managing director of Close, said it was a mistake to view Winterflood in the same light as the proprietary trading arms of investment banks such as Goldman Sachs and Salomon Brothers, which take large speculative positions on their own account. He said the firm made markets in stocks but with a very small net exposure.

The rest of the group was no slouch, with a 45 per cent increase in profits from banking, corporate finance and investment management. Close carved a niche in Business Expansion Schemes. These have been stopped by the Chancellor, but the group is likely to make up to pounds 2m a year in management fees for five years as a result of the pounds 350m of schemes it launched.