Close Brothers notches up 21st annual increase

Close Brothers, the merchant banking group, yesterday reported record full-year results, and hinted that it would expand its investment management business through acquisitions.

The 33 per cent rise in pre-tax profits to slightly more than pounds 45m in the year to 31 July was the 21st successive annual increase, and included only a negligible contribution from the Hill Samuel Corporate Finance (HSCF) business bought in May. Close Brothers said it had not suffered from a wave of client and staff defections at HSCF which are all too common following takeovers involving City firms.

Asset finance and the Winterflood market-making business were the main drivers of the growth in profits, which was accompanied by a 17 per cent rise in total dividends to 10p per share. Close Brothers' shares advanced by 3.5p to 343.5p.

Rod Kent, managing director of Close Brothers, said, Winterflood had a "fabulous year" and had a good market position in its specialist area of small stocks.

Winterflood, which makes markets in all of the 210 companies on the Alternative Investment Market, increased its share of Close Brothers' total profits from 22 to 35 per cent. Asset finance made 45 per cent of group profits, and the remaining 20 per cent came from traditional merchant banking.

"Overall, all of the areas of business have done well," added Mr Kent, who wants the bank to increase its "fee earning business" over the coming years, particularly in corporate finance and investment management.

Close Brothers' investment management business is specialist, offering products such as risk-protected index unit trusts.

Mr Kent said the bank had no intention to expand into more mainstream market products such as unit trusts, but would consider acquisitions in investment management.

Brisk business in mergers and acquisitions is fuelling profits at most merchant banks, but Mr Kent said Close Brothers' plans to build its expertise in this area were not based on this year's hectic market. "This is a core area for us," Mr Kent said.

Unlike many other banks, Close Brothers does not intend to expand its corporate finance business to offer a whole range of products to its clients.

"What we are is purely independent. We do not lend to the companies we advise. We are very clear by what we mean by corporate finance," Mr Kent said.