Close Brothers Group plc (“the group” or “Close Brothers”) today issues its scheduled trading update relating to the third quarter from 1 February 2021 to 30 April 2021 (“the quarter”)
Adrian Sainsbury, Chief Executive Officer
“We continued to perform strongly in the third quarter, in line with the trends reported in the first half of the year. There are positive signs of economic recovery, but uncertainty remains. I am confident that our proven and resilient model, together with the expertise of our people, leave us well placed to continue supporting our customers and clients and to make the most of opportunities going forward.
I am very proud of our continuing efforts to make a positive impact over the long term. We have established a new partnership with the Social Mobility Foundation to help us build our programme of support for those not afforded the same opportunities as others, particularly as the country recovers from Covid-19. We remain mindful of the threat of climate change and are supportive of the 2050 net zero goals of the Paris Agreement. I look forward to talking further about our responsible approach at our upcoming Investor Event on 15 June 2021.”
Group and divisional performance
The group has continued to perform strongly in the third quarter with high new business volumes in the lending business, solid net inflows in Asset Management and a very strong trading performance in Winterflood.
Our capital position remained strong, with a Common Equity Tier 1 (“CET1”) capital ratio of 15.5% (31 January 2021: 15.3%), significantly above the applicable minimum regulatory requirement1.
In Banking, the loan book increased 3.2% in the quarter and 7.7% year-to-date to £8.2 billion (31 January 2021: £8.0 billion; 31 July 2020: £7.6 billion). We continued to see strong demand for loans issued under the Coronavirus Business Interruption Loan Scheme (CBILS)2 prior to the application deadline on 31 March 2021, particularly in the Asset Finance business. In Invoice Finance, levels of utilisation improved with the progressive reopening of the economy. We have seen continued high levels of new business volumes in Motor Finance and the Property business loan book has remained broadly stable.
The annualised net interest margin was broadly stable on the first half3, as we maintained our pricing discipline.
We remain focused on the strict management of costs while progressing our key strategic programmes.
The annualised bad debt ratio reduced slightly on the first half, reflecting a stable credit performance and modest releases of judgmental management overlays in the Retail and Property businesses to reflect improvements in the macroeconomic outlook.
The performance of the forborne book remains encouraging. At 30 April 2021, the total balance of loans classified as forborne and subject to Covid-19 concessions reduced to £1.0 billion (31 January 2021: £1.1 billion), driven by an increase in the proportion of customers resuming repayments or no longer being considered forborne.
While we remain confident in the quality of our lending, which is predominantly secured, prudently underwritten and diverse, our impairment provisions continue to reflect the uncertain external environment and the fact that the full impact of Covid-19 has yet to be reflected in experienced credit performance. We will continue to closely monitor the performance of the loan book as the macroeconomic outlook evolves and government support schemes end in the coming months4.
The Asset Management division generated annualised net inflows of 6% (31 January 2021: 4%), despite the continued impact of reduced face-to-face interaction with clients arising from Covid-19. Including favourable market movements, managed assets increased to £14.8 billion (31 January 2021: £13.8 billion) and total client assets increased to £16.0 billion (31 January 2021: £14.9 billion). We remain committed to maintaining our excellent client service whilst investing in new hires and technology to support the long-term growth potential of the business.
Winterflood delivered a very strong trading performance, benefiting from continued elevated market activity and the expertise of our traders. Average daily bargains stood at 120k in the quarter (31 January 2021: 97k; 31 July 2020: 82k), with no loss days. As a result, Winterflood's year-to-date operating profit is ahead of the level achieved in the whole of the 2020 financial year. Winterflood remains well positioned to continue trading profitably in a range of conditions, but due to the nature of the business, it remains sensitive to changes in the market environment.
Outlook
We continue to respond well to the challenges and opportunities arising from the current environment. Although there has been some improvement in the broader economic outlook, the impact of Covid-19 on customers remains uncertain. Our proven and resilient model and strong balance sheet, combined with our deep experience in navigating a wide range of economic conditions, leave us well placed to continue supporting our colleagues, customers and clients over the long term.