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RNS Number : 9937P
Arbuthnot Banking Group PLC
16 October 2019
16 October 2019
Arbuthnot Banking Group PLC
Third Quarter Trading Update
Arbuthnot Banking Group PLC ("Arbuthnot", "ABG" or "the Group")
today issues an update on trading for the three months to 30
September 2019.
Highlights
-- Continued good progress in developing and diversifying the
business, and also operationally as new investment is transforming
the efficiency and resiliency of the Group's operating
platforms.
-- Completion and smooth transition of two residential mortgage
portfolios at a 2.7% discount to par, adding GBP264.9m of mortgages
to the Group loan book.
-- Overall loan balances have grown 33% compared to the prior
year and have since exceeded GBP1.6bn.
-- Deposit balances have increased 17% compared to the prior
year and have since surpassed GBP2bn.
-- GBP85m of new deposits raised by Arbuthnot Direct since the
mortgage portfolio acquisitions leaving the Group with more than
GBP300m surplus liquidity in excess of the minimum regulatory
requirement.
-- New divisions continue to make strong progress:
o Renaissance Asset Finance ended the quarter with lending
balances of GBP101m, an increase of 22% compared to the prior
year.
o Arbuthnot Asset Based Lending has grown customer facilities to
GBP106m, an increase of 278% over the prior year.
-- Work has commenced on a major refurbishment and enhancement
of the Group's West End property.
Commenting on the third quarter trading, Sir Henry Angest,
Chairman and Chief Executive of Arbuthnot said:
"The Group remains well positioned to continue its strategy of
diversification of its lending and deposit raising capabilities and
the deployment of the surplus capital. Our ability to maintain high
levels of surplus liquidity has enabled us to take advantage of
opportunities that present themselves over time, such as the
acquisition of the mortgage portfolios. As a result of this and
notwithstanding the current geo-political uncertainties, we remain
confident of being able to continue to grow the businesses within
the Group."
Mortgage Portfolio Acquisition
In August the Group completed the purchase of the residential
mortgage portfolios which added GBP264.9m of mortgages acquired at
a discount of 2.7%. The transition of the portfolios took place
smoothly and the portfolios continue to perform better than
indicated by the models used as part of the transaction.
Arbuthnot Direct
As previously described, the Arbuthnot Direct deposit platform
was created, in part, to enable the bank to participate in
transactions such as the portfolio acquisition, giving the Group
the ability to build its liquidity resources quickly. Accordingly,
following the signing of the purchase agreement, Arbuthnot Direct
has raised GBP85m of new deposits and at the quarter end the
Group's surplus liquidity was in excess of GBP300m of the amount
required to be held in reserve. At the end of September our deposit
balances are 17% higher than the prior year and since the quarter
end the balances surpassed GBP2bn for the first time.
Core Loan Book
The core lending business continues to work on a number of new
business opportunities but has seen increasing uncertainty in the
macro economic outlook lead to a delay in the drawdown of these
loans. As a result, the underlying loan balances (excluding the
mortgage portfolio purchase) are behind where we anticipated, but
we believe this simply to be a timing issue, rather than a
fundamental change. Regardless of this, the Group continues to
maintain strong discipline in pricing lending risk, as it expects
the current heightened competition in the retail lending markets to
pass. Despite the wider economic uncertainty, lending balances are
33% higher than the same time in 2018 and since the quarter end
have surpassed GBP1.6bn.
Associated with the loan book the Group has a number of interest
rate derivatives that are hedging approximately GBP26m of fixed
rate loans. During the year these derivatives have generated a mark
to market loss of approximately GBP500k as a result of falling
interest rates in the LIBOR markets. If market conditions continue
at these levels, this mark to market loss will flow into the year
end results. However, over the full term of the derivative
contracts the overall economic effect will result in a net zero
impact to the profit and loss of the Group.
Though the performance of the underlying loan book remains
strong, we continue to work through a small number of longstanding
impaired loans. However, the resultant IFRS 9 provisions that arise
when the outlook for economic scenarios used in the stress testing
worsen, have seen a small increase. In addition there are now
provisions associated with the grossing up of interest, which were
not previously required.
Private Bank
The change in strategy to focus the Private Bank on identifying
and attracting new criteria clients is beginning to show results,
with the number of new clients that have joined in the first nine
months of 2019 averaging approximately 40 per month. As a result,
the net inflows of customer balances into the Investment Management
business have been positive for each of the three months in the
third quarter. However, assets under management remain below our
expectations, largely as a result of the poor stock market
conditions at the end of 2018 and also the slow conversion rate of
criteria clients in the first part of the year.
The Wealth Planning division will be loss making this year as a
result of a fundamental change in its business proposition and
hence its charging structure. In July the business ceased charging
clients for ongoing annual advice reviews and moved to an event
based model, where clients are charged wealth planning fees when
they need specific advice.
New Business Divisions
The Group's new business divisions continue to make good
progress.
Renaissance Asset Finance ended the quarter with lending
balances of GBP101m, an increase of 22% compared to the same time
in the prior year. This growth represents good progress, with the
business recording above average volumes in July and August. The
market has also seen a number of competitors withdraw from the
market, which we expect to aid us in the long term. However, the
business has experienced a small number of credit impairment events
which will temper the otherwise overall good performance of the
business.
The Arbuthnot Asset Based Lending business has continued to
source new lending opportunities and has increased its customer
facilities to GBP106m, an increase of 278% on the prior year.
The business also experienced its first potential credit event
as one of its customers suffered a downturn in its trading
performance. However, Arbuthnot's team managed to facilitate a
rescue of the business via a trade sale.
Arbuthnot Specialist Finance has only lent GBP1m as it remains
in a soft launch phase due to an aborted initial search for a
technology provider for its customer facing loans platform. A new
provider is now engaged and the platform should be fully
operational in 2020.
Operational Resilience and Efficiency
During the quarter, the Group agreed to implement the Salesforce
CRM System, which will transform the way in which the bank
interacts with clients. The implementation of this system is now
fully in train with the Group's technical partners and the first
phase is expected to be completed by Q1 2020.
At the same time, the Group has agreed to develop a new website
for Arbuthnot Latham, which will enable the business to establish a
digital marketing channel for the first time.
In conjunction with our partners at Oracle, the Group has been
developing the API (Application Programming Interface) connections
to the wider payment systems to be fully compliant with the Second
Payment Services Directive ("PSD2"). As a secondary benefit to
this, the Group will examine its payment clearing mechanisms, which
we expect will enable Arbuthnot Latham to offer extended clearing
services beyond its current payment cut off times. We expect this
to enable the bank to offer enhanced banking products to its
clients, which we expect will be implemented during 2020.
Investment Properties
The major tenant of the Group's West End property moved out at
the end of its lease at the end of September. Work has now
commenced to complete a major refurbishment and enhancement of the
building. Once completed, the office space is expected to be re-let
at a significantly higher rent and when market conditions permit,
the Group will look to sell the property.
The refurbishment of the property in Birmingham has largely been
completed and a tenant for one of the five floors have already been
found. Also, this property will now be reclassified as being "held
for sale" rather than as an investment property.
The Directors of the Company accept responsibility for the
contents of this announcement.
Enquiries:
Arbuthnot Banking Group
Sir Henry Angest, Chairman and Chief Executive
Andrew Salmon, Group Chief Operating Officer
James Cobb, Group Finance Director 0207 012 2400
Grant Thornton UK LLP (Nominated Adviser
and
NEX Exchange Corporate Advisor)
Colin Aaronson / Samantha Harrison / Niall
McDonald 0207 383 5100
Numis Securities Ltd (Joint Broker)
Stephen Westgate 0207 260 1000
Shore Capital Ltd (Joint Broker)
Hugh Morgan/ Daniel Bush 0207 408 4090
Maitland/AMO (Financial PR)
Neil Bennett / Jais Mehaji / Sam Cartwright 0207 379 5151
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END
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