19th Sep 2024 08:58
(Alliance News) - Close Brothers Group PLC on Thursday announced the sale of its wealth management business as it continues to strengthen its balance sheet in the face of a probe into historic motor finance arrangements.
The London-based merchant bank said Close Brothers Asset Management will be sold to funds managed by Oaktree Capital Management for up to GBP200 million.
The deal is expected to increase the group's common equity tier 1 capital ratio by around 100 basis points on a pro forma basis, marking "significant" progress towards the plan outlined in March to strengthen the capital base.
In March, Close Brothers announced plans to strengthen the group's available CET1 capital by around GBP400 million by the end of the 2025 financial year. The firm retained around GBP100 million as a result of the previously announced decision not to pay a dividend for the 2024 financial year, confirmed in results released Thursday.
The reinstatement of dividends in 2025 and beyond will be reviewed once the Financial Conduct Authority has concluded its process, the firm said.
The company acted in response to the "significant uncertainty" about the outcome of the FCA's review of historical motor finance commission arrangements, announced in January.
"The board remains confident that these actions leave the group well positioned to navigate the current uncertainty," Close Brothers said.
Close Brothers said it intends to retain all upfront cash proceeds from the transaction of around GBP172 million.
The deal includes GBP146 million to be paid upfront in cash by Oaktree, and a GBP26 million dividend from CBAM to be paid to Close Brothers. The deal also has a GBP28 million contingent deferred consideration in the form of preference shares.
The sale came as the firm reported operating income for the year to July 31 edged up 1.2% to GBP944.2 million from GBP932.6 million the year prior. Pretax profit climbed 27% to GBP142.0 million from GBP112.0 million.
Boosting its bottom-line was "higher profitability in the banking division" and the non-repeat of impairment charges incurred at Novitas the year prior.
"This was partly offset by costs associated with the handling of complaints and other operational costs associated with the FCA's review of historical motor finance commission arrangements," Close Brothers added.
The CETI ratio at July is 12.8% compared with 13.3% a year ago. The net interest margin declined to 7.4% from 7.7% and a return on average tangible equity of 8.3%, rising from 5.9%.
In banking, the firm saw loan book growth of 6% to GBP10.1 billion from GBP9.5 billion a year prior, reflecting healthy drawdowns in property and strong new business in invoice finance, as well as continued good demand in asset finance and motor finance, partly offset by a decline in premium finance.
CBAM delivered net inflows of 8%, while total managed assets rose 18% to GBP19.3 billion, driven by net inflows and positive market performance.
In Winterflood, market conditions remained unfavourable and the business delivered an operating loss of GBP1.7 million compared with an operating profit of GBP3.5 million a year ago.
Looking ahead, the firm plans for low single-digit percentage growth in the loan book for the 2025 financial year. It said it is well positioned to sustain the net interest margin delivered in the second half of the 2024 financial year of 7.2%.
The company expects income and adjusted operating expenses growth to be aligned in the 2025 financial year and to deliver positive operating leverage in the 2026 financial year.
Shares in Close Brothers rose 3.9% to 548.16 pence each in London on Thursday morning.
By Jeremy Cutler, Alliance News reporter
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