Close Brothers promises to 'hold its nerve'
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Your support makes all the difference.Close brothers, one of the UK's remaining independent merchant banks, warned yesterday it was facing a long-haul downturn in trading conditions but promised shareholders it would "hold its nerve" until stock markets improved.
A downbeat statement from the group's chairman, Sir David Scholey, at its annual general meeting in London yesterday caused the shares to drop 11 per cent before recovering by the end of the day to close down 6.25 per cent at 547.5p.
Sir David's words echoed those made at the time of the company's year-end results when it announced a 24 per cent drop in pre-tax profits to £68.4m. "When we announced our results I said that the economic outlook was neither clear nor encouraging and that we remained cautious overall about the outlook for the year. This is still the case," he said.
The AGM marked the handover of the company's top job to Colin Keogh. He replaces Rod Kent, who has now retired. Mr Keogh said: "We feel it is important to keep the market up to date with what we are thinking. We think we are in for a long-haul decline, but we think we have the right business model and will hold our nerve." Sir David said conditions were still tough for its corporate finance, market making and asset management businesses, which all rely on good stock market performance for profits.
The group is hoping the strength of its banking unit, which brings in about 60 per cent of its profits, to pull the group through to better times.
"Many of our businesses have relatively high operational gearing and are feeling the effects of the continuing stock market weakness. We retain our cautious stance," Sir David said.
Martin Cross, an analyst at Teather & Greenwood, did not believe the company's fortunes have changed significantly since September and put the fall in the share price down to the small number of companies that control about 40 per cent of the stock.
Mr Cross said: "When there are any sellers, it has a disproportionate effect on the share price. Close will rely on the diverse portfolio of businesses to stand them in good stead. Its banking service is providing a steadying influence and the shares could rise as elastically as they have fallen."
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