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Asset manager warns on profitability

Asset manager warns on profitability

Close Brothers has warned that current market conditions have dented the profitability of its asset management business.

In a trading statement released to the stock exchange this morning (July 19) and covering the period to June 30, the company said the assets under management for the discretionary business of its investment division rose by 9 per cent, but warned that profitability "continues to reflect lower market levels for most of the year and ongoing investment spend to support its long-term growth potential".

The actual profit number for the business will be revealed in the annual results later this year. 

Managed assets increased to £11.3bn at 30 June 2019 and total client assets, including the advised assets, grew 6 per cent to £12.9bn in the 11-month period.

In March, the company reported a 3 per cent decline in profits for the six months to the end of January 2019 and cited poor market conditions, leading to profits of £135.6m.

One difference between the six months to March and the subsequent period was the decline in net interest margin the firm had observed, which has fallen from 8 per cent to 7.8 per cent in the Close Brothers banking division, which the company attributed to a higher cost of finance.

This happened because US interest rates have risen, so the cost for the bank of funding itself rose. 

The division had a loan book of £7.6bn as at 30 June 2019, which had grown 5.1 per cent in the year.

Close Brothers reported there hasn't been a material increase in bad debts among its bank customers. 

david.thorpe@ft.com