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By Donia O'Loughlin | Published Jun 14, 2012

Charles Stanley blames £1.6m FSCS bill for plummeting profit

Charles Stanley reported today (14 June) that its profit before tax has plummeted by 37 per cent in the year to the end of March 2012 to £8.5m.

In the stockbroking and investment management group’s preliminary results, it announced funds under management and administration increased 6 per cent to £15.4bn, however its revenue for the year fell 5 per cent to £119.6m.

In the group’s half year results, it previously reported a marginal improvement in revenue compared with the first half of the previous year, and a 29 per cent decline in profit before tax.

However, it said since then economic conditions have retreated back into recession at home, and uncertainty has re-doubled in Europe.

The group said this “severely” affected the propensity of our clients to undertake Stock Exchange transactions.

The adjusted profit before tax was £12.5m compared to £17.7m at the end of March 2011.

This figure excludes the effect of amortisation and “another very substantial payment” to the Financial Services Compensation Scheme.

Sir David Howard, chairman, said: “I complained strongly in my statement last year about the Financial Services Compensation Scheme, which requires your company to fund compensation to clients of failed investment firms in wholly unrelated areas of business.

“In 2009 to 2010 the bill for your company was £686,000, in 2010 to 2011 it was £2.6m, and in the latest year the figure is £1.6m.

“This represents a very substantial slice of our pre-tax profit. It was to be expected that increasingly aggressive regulatory oversight and intervention in the investment industry would follow in the wake of the economic and market failure which has stalked the global economy since 2008.

“This intense regulatory pressure across the financial services sector places a great burden on our resources, both financially and in the diversion of management resources.

“But there is little evidence that the increasingly intrusive and burdensome micro-management of investment companies has been successful in staving off some egregious examples of fraud and mismanagement, the cost of which is spread across the shareholders in financial service companies.

“Looking ahead, my confidence this year is inevitably more muted, but your company remains in good shape to weather this economic storm, thanks to our management culture of prudence that is reflected in a balance sheet which is both highly liquid and well capitalised.”

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