REG - Arbuthnot Banking - Third Quarter 2024 Trading Update

Arbuthnot BankingAnnouncement

17/10/2024 07:00

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RNS Number : 5073I  Arbuthnot Banking Group PLC  17 October 2024

17 October 2024

 

Arbuthnot Banking Group PLC

 

Third Quarter 2024 Trading Update

 

The Board of Arbuthnot Banking Group PLC ("Arbuthnot", the "Company" or the
"Group") provides the following update regarding the trading performance of
the Group for the three months to 30 September 2024.

 

Highlights

 

·    Customer deposit balances of £3.8bn at the period end (30 September
2023: £3.5bn)

·    Customer loans (including leased assets) of £2.5bn at the period end
(30 September 2023: £2.3bn)

·    Funds under Management and Administration exceed £2bn for the first
time with growth of 18% in the first nine months of 2024

·    Completed London office move to newly refurbished premises in the
heart of the City

 

Group Performance

 

The Group continued to make progress with both its deposits and loans.
However, while the Group maintained its plan to diversify the lending
portfolios as indicated in the Future State 2 strategy, it is also good to
report the strong performance of the Wealth Management division, which saw
Funds under Management and Administration exceed £2bn for the first time in
its history.

 

As widely anticipated the Bank of England signalled the next phase of its
interest rate cycle with a 25 basis point cut effective 1 August, and as a
result interest income started to be adversely affected.

 

During the third quarter the PRA published its proposed new capital rules for
Basel 3.1 and also for banks considered to be "Small Domestic Deposit Takers"
(Strong and Simple).  These are the most significant changes to the
industry's capital regime since those introduced immediately after the
financial crisis. The Group is in the process of analysing these rules to
decide which to adopt.  This will also determine if any changes in strategy
are needed, in particular to lending asset classes so that the Group can
continue to optimise its returns on capital.

 

Also in the third quarter the Group moved into its new offices in the City.
The premises provide modern facilities to welcome both our clients and
employees. The previous offices at Wilson Street and Dominion Street are being
returned to the landlords in October, which will see the end of the associated
dual running costs which were inevitable as part of this transition.

 

Finally, during the quarter the UK voted for a change in Government for the
first time in nearly 15 years and we now await the Autumn Budget ("Budget") to
understand how the fiscal regime may change. We stand ready to react to this
and to support our clients accordingly.

 

Business Division Highlights

 

Banking

 

The Bank reported strong growth and client acquisition in third quarter
lending, across both Private and Commercial Banking to finish the quarter with
loan balances of £1.6bn, with the majority of new lending being fixed rate
providing mitigation against future expected base rate reductions.

 

Deposits finished the quarter at £3.8bn, despite significant deposit outflows
from Banking into investment products provided by our Wealth Management
division.  Following the Bank of England base rate rises in 2022/23, the
majority of the Bank's fixed term deposits have repriced, this along with more
clients switching products as depositors try to fix their returns ahead of
future falls, has resulted in the cost of deposits rising to 3.12% for the
month of September.

 

Despite the ongoing economic headwinds, the loan book continued to perform
robustly as a result of the Bank's conservative credit appetite and low LTV
lending.  It is expected the Banking loan book will contract towards the end
of 2024 as the Group focuses on more capital efficient lending, by increasing
its loan balances in the specialist lending businesses.

 

The Bank was also pleased to receive the results from its client satisfaction
survey.  A very strong response rate from clients was received and the
overall Net Promoter Score (NPS) had improved from 64 to 71, which is top
quartile across Private and Commercial Banking.  The results underline the
Bank's progress towards its vision to be the leading full service, human-scale
relationship bank powered by modern technology and in pursuit of this the Bank
continues to deliver its digital transformation plan.

 

Wealth Management

 

Funds Under Management and Administration have grown 18% in the nine months to
30 September, to finish the quarter at £2.0bn.  A significant proportion of
inflows were generated from deposits already held with Arbuthnot Latham, with
clients transferring funds from cash deposits into investment assets.

 

Gross inflows were £81m, and net inflows were £43m for the third quarter
with the number of new wealth management clients joining the Bank almost 50%
higher than the prior year.  Outflows have tracked slightly ahead of
expectation, although they were significantly lower than levels observed in
the prior year as the impact fades from higher interest rates which prompted
debt reduction plans funded by the sale of investments.

 

The Direct Gilt Service, launched in February of this year, has proved
significantly more popular than initially expected, having attracted almost
£100m of assets. These have been generated from a blend of maturing fixed
term deposits, and assets held in execution-only portfolios, along with
external cash deposits.

 

Renaissance Asset Finance ("RAF")

 

RAF finished the quarter with a loan book of £242m, equating to annual growth
of 38% when compared to £176m at the same time in the prior year and 23%
growth for the first nine months of 2024.

 

RAF continued to broaden its offerings in the wholesale funding sector whilst
developing a specialist finance portfolio, providing new and additional
funding through providing block discounting facilities and revolving credit
facilities to businesses with successful track records. This division was
launched in 2021 and the Block Discounting loan book increased to £36m at the
end of Q3, equating to an increase of 51% in the first nine months of 2024.

 

Arbuthnot Commercial Asset Based Lending ("ACABL")

 

ACABL finished the third quarter with a loan book of £293m, compared to
£264m at 30 June 2024 and £240m at the end of 2023, representing growth of
22% in the first nine months of 2024.

 

Mid-market deal making remains fairly subdued with confidence yet to fully
return to the market resulting in a reduction in the number of event-driven
transactions which are the focus of ACABL. The established loan book however
continues to provide opportunities to support existing clients with natural
growth as well as bolt-on acquisitions.

 

The business model of lending against high-quality realisable assets along
with a low ratio of clients to client managers allowing close and timely
monitoring of client exposures has continued to shield the business from
significant credit losses despite the challenging economic conditions.

 

Asset Alliance Group ("AAG")

 

AAG had Assets Available for Lease of £362m at 30 September 2024 compared to
£363m at 30 June 2024 and £327m at 31 December 2023. The rolling yield on
the leasing portfolio continues to be strong at 8.4%. However, the overall
economic position within the UK remains uncertain with the upcoming Budget at
the end of the month. These factors, together with improved availability and
supply of new vehicles, have reduced the demand for used trucks and therefore,
as previously reported, these asset sales continue to be challenging.

 

The Bus Rental Division is performing well with 100% utilisation and yields in
excess of 9%, while the utilisation of the truck rental fleet has also moved
above target levels of 90%.

 

 The Directors of the Company accept responsibility for the contents of this
 announcement.

 The information contained within this announcement is deemed to constitute
 inside information as stipulated under the retained EU law version of the
 Market Abuse Regulation (EU) No. 596/2014 (the "UK MAR") which is part of UK
 law by virtue of the European Union (Withdrawal) Act 2018. The information is
 disclosed in accordance with the Company's obligations under Article 17 of the
 UK MAR. Upon the publication of this announcement, this inside information is
 now considered to be in the public domain.

ENQUIRIES:

 Arbuthnot Banking Group                                                                                                                                                                      020 7012 2400
 Sir Henry Angest, Chairman and Chief Executive
 Andrew Salmon, Group Chief Operating Officer
 James Cobb, Group Finance Director

 Grant Thornton UK LLP (Nominated Adviser and AQSE Corporate Adviser)                                                                                                                         020 7383 5100
 Colin Aaronson
 Samantha Harrison
 Ciara Donnelly

 Shore Capital                                                                                                                                                                                020 7408 4090
 (Broker)
 Daniel Bush
 David Coaten
 Tom Knibbs

 Maitland/AMO (Financial PR)                                                                                                                                                                  020 7379 5151
 Neil Bennett
 Sam Cartwright

 

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