Kleinwort's 66% rise beats profit forecasts

KLEINWORT BENSON, the merchant bank, announced better-than-expected profits for 1992, up 66 per cent to pounds 46.3m, after dramatic improvements in its bad debt position and a good performance from the Treasury division.

David Peake, who is retiring as chairman in favour of Lord Rockley at the end of April, commented: 'Last year was a bumpy ride but the last quarter was very good. So far 1993 is going well.'

Analysts had forecast Kleinwort's profits at pounds 31m to pounds 45m, and UK merchant bank shares firmed in sympathy after the announcement. The City perversely views the results, following several disappointing years, as making Kleinwort more attractive to a bid from the Continent but also less likely to want one.

Mr Peake was at pains to play down the relevance of Banque Nationale de Paris's 4.8 per cent stake, which the French bank took in 1991 to encourage co-operation in international merchant banking. The banks are 'old friends,' Mr Peake said.

'We're certainly not waiting for something to happen', he said.

Kleinwort's banking side gained 'significant fee-earning business in both the UK and US' in 1992 and bad debt was squeezed. New banking provisions of pounds 24m were offset by releases and recoveries of pounds 17m, giving a net provision of pounds 7m, down from pounds 39m in 1991.

Jonathan Agnew, the chief executive, said: 'There were a large number of releases spread across the portfolio in the UK and US. These included a number of restructurings of highly leveraged transactions.'

Mr Agnew said that 'practically all the parts of the Treasury division had a good year'. The cash desk and foreign exchange did well and the gilt market-maker managed a 35 per cent return on capital.

Equities and corporate finance did less well than in 1991, while Japan suffered a loss. Mr Agnew insisted, however, that Kleinwort has no intention of withdrawing from the Tokyo stock exchange.

Corporate finance is picking up, Mr Agnew said. Kleinwort underwrote the recent rights issue by Commercial Union, advised Trafalgar House on its cash call, and is heavily involved in utility privatisations abroad and project finance in the energy field.

Profits from investment management fell from pounds 24.4m to pounds 22.1m, mainly as a result of higher provisioning against mortgage lending within the private bank. Total funds under management rose to nearly pounds 11m.

Kleinwort made a pounds 10m provision before tax against the future costs of surplus office space in the UK and US. It also made a charge of pounds 21m against reserves after revaluing its properties in London, the Channel Islands and Geneva.

The tax and property adjustments reduced Kleinwort's net asset value, and the shares, which rose 17p to 378p following the announcement, are now trading at a substantial premium to NAV.