Close Brothers share price falls as sets aside £90m for legal loans

Close Brothers will set aside an additional £90m in its 2023 financial statements against bad loans from legal-finance specialist Novitas Loans. 

Close Brothers acquired Novitas in 2017. In 2021 Close Brothers ceased approval of new loans from Novitas and let existing loans run off. 

In a statement today, the merchant banking group said Novitas was reviewing its options regarding cases it is funding which “now have limited prospects of successfully progressing through the courts”. 

Around £90m will be set aside in the financial statement from the first half of 2023 reflecting a “material increase” in probability of default and loss given default assumptions.

Close Brothers expects net income from Novitas to fall to around £8m by the 2024 financial year, down from around £36m in financial 2022. This will also reduce the CET1 capital ratio by around 80 basis points.

The London-listed banking group said: “The financial strength of the group leaves us well placed to absorb this and to continue to deliver on our long-term track record of disciplined growth and returns to shareholders.”

Shares in the company were trading 13 per cent lower in early on Friday.

Close Brothers also gave an update on trading in the five months ending 31 December 2022.

The loan book increased 1.5 per cent to £9.2bn after a “pick-up in overall demand” driven by commercial business and in the premium and property sector. 

Net inflows in the year to date increased six per cent despite “challenging market conditions”, managed assets however dropped slightly to £15.2bn from £15.3bn at 31 July while total client assets fell to £16.3bn from £16.6bn. 

Winterflood, which provides outsourced dealing and custody services for asset managers, has been “adversely affected by the continued market slow-down in trading activity in higher margin sectors”. Operating profit in the period was £1.7m as a result. In the 2022 financial year it was £14.1m.

Adrian Sainsbury, chief executive, said: “We have delivered a resilient performance so far this financial year, despite the uncertain market backdrop. We saw good demand and strong margins in Banking and delivered healthy net inflows in CBAM, though trading activity remained subdued at Winterflood.”