Of Special Interest


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30th September 2011

Close Brothers profit fall mainly on subsidiary writedowns

Close Brothers reported a net profit for the year to end July of £14.6m (€16.7m $22.8m ¥1,745m Y146.0m) DOWN 78%. The group would prefer you to concentrate on an adjusted operating profit of £131.2m UP 11% on a year ago and indeed you have to work to page 7 of the preliminary report to find the statutory figure.

A significant part of the difference between the profit figures is due to impairments recorded in discontinued businesses as the bank tried to get back to its core business. Best news is that it has agreed to sell its stake in Mako, the market maker. In every financial report, literally, since purchasing the stake in 2007 it has had to apologise for Mako's performance. This formed the bulk of a total of £46.9m in writedown. During the period it also disposed of its Cayman Islands businesses with a disposal loss of £28m. Given the continued poor performance of Mako it is perhaps a question for the auditors as to why it should have remained on the books at £36m more than it could sell the stake for. A similar question could be asked regarding why the Cayman Islands business loss only crystallised at the time of sale.

Close Brothers has generally made reasonable money for the size of its operations from its core UK SME business. Other operations such as Winterflood and Seydler have previously experienced difficult times but are proving more effective recently. Winterflood reported an 11% fall in operating profit, whilst Seydler reported an 84% increase from a low base.