Close rules out break-up amid profit fall by Finance News Bulletin

Published: 15/04/08

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Close Brothers ruled out a break-up of the London-based investment bank on Monday after reporting a plunge in interim pre-tax profits that saw the shares fall to a fresh three-year low.

The group initiated a strategic review in November, when Cenkos Securities and Landsbanki made an indicative 950p a share approach, valuing the business at £1.4bn ($2.78bn).

Close said the review had concluded that a sale of the entire group, or any of its constituent banking, advisory, securities trading or asset management divisions, would deliver less value to shareholders than continuing to develop the business within its existing structure.

Colin Keogh, chief executive, said: “There was a suggestion that we were a bunch of fuddy-duddies who stuck our head in the sand and hoped [the bid] would go away. The reality is that we’ve had a very hard, dispassionate look at the business and the options in front of us.

“This is not the do nothing option – it’s a carefully planned decision. We never had a firm, fully financed offer for the group.”

Mr Keogh added that he saw acquisition opportunities in banking and asset management in the coming months.

Close would not be gearing itself up to return cash to shareholders, although the capital structure would be kept under review. The group also plans to introduce an equity-like staff incentive scheme before the end of its financial year.

Pre-tax profits fell 29 per cent to £69.8m, the fall driven by £5.5m of advisory fees related to the failed bid talks and the booking of £21.1m of gains on its private equity portfolio in the same period the previous year.

Mr Keogh said that the advisory fees reflected the “enormous” effort involved in the recent discussions.

Oriel Securities said it was cutting its forecast for Close’s full-year pre-tax profits from about £145m to £130m.

Operating profits from the banking division were up slightly at £37.7m, while those from securities trading rose £3.4m to £23.8m, largely thanks to Close’s acquisition of a half share in Mako Global derivatives in October.

In corporate finance, profits fell from £7.4m to £4.6m, but Mr Keogh said there were signs of the restructuring business picking up.Copyright The Financial Times Limited 2008

Close is no nearer to finding a path back to its peak - Mar-03Talks on Close Bros takeover collapse - Feb-29Cenkos quits Close talks - Jan-23Close sale prospects increase - Jan-13Close bid moving towards £1.6bn - Jan-09More from this sector

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