Close Brothers' profits plunge as volatility hits Winterflood business

Close Brothers saw its profits drop by 13% in the year to July as its Winterflood business was hit by volatile markets and a decline in trading activity.

The group's adjusted operating profit reduced to £234.8m from £270.7m in the 12 months to July as Winterflood was struck by a 77% plunge in profits to £14.1m, down from £60.9m last year.

The core banking division grew its earnings by 7% to £227m, but the firm also recorded weakness in the asset management division.

Adjusted operating profit for Close Brothers Asset Management was down 8% to £21.7m, due to negative market movements hitting revenues in the second half of the year, as well as higher staff costs.

Close Brothers meets expectations but 'no-one will push forecasts higher'

Positive net inflows of £844m for the year and market movements in the first half of the year grew CBAM's total operating income by 6% to £148m, despite falling markets and their impact on wider client sentiment in the second half of the year. 

Total managed assets decreased 2% to £15.3bn, as negative market movements of £1.1bn more than offset net inflows. Total client assets, including advised and managed assets, fell by 3% overall to £16.6bn.

"CBAM was affected by falling markets but continued to attract client assets. Winterflood faced declining markets and reduced trading activity, in sharp contrast to the exceptionally strong conditions in the prior year," said CEO Adrian Sainsbury.

"Although we are aware of the pressures that the rising inflation and interest rates will have on our customers and colleagues, I am confident that our proven and resilient business model, strong financial position and deep expertise leave us well positioned to continue to support them now and into the future."

Close Brothers AM appoints new CEO

The revenue margin reduced to 87bps, down from 91bps in 2021, reflecting lower investment management margins as flows included a higher proportion of lower margin products.

Adjusted operating expenses increased 9% to £126.3m as inflation and new hires drove staff costs higher and the firm continued to invest in its re-platforming project to enhance efficiency and improve the customer experience.

The board is proposing a final dividend of 44p per share, resulting in a full-year dividend per share of 66p, up 10% and marking a return to the group's pre-pandemic dividend level. The group's share price is down 33.4% year-to-date, according to Morningstar data.