CAPE TOWN - Investec’s share price fell 5.2 percent to R86.90 on Friday morning after it released a trading update that predicted headline earnings per share would fall by 15-18 percent for the six months ending September 30, 2019.
The earnings decline was largely the result of costs from actions taken to simplify and focus the business in the face of weaker investment banking performance in the UK, in line with its peers, and uncertainties caused by Brexit, joint CEO Fanie Titi said.
The management actions included closing the Click & Invest operations that were part of the UK wealth management business, closure and run down of the private equity direct investments business in Hong Kong, sale of the Irish Wealth & Investment business and restructure of the Irish branch as a consequence of Brexit.
These, as well as costs incurred on the proposed demerger of Investec Asset Management in the second half, were anticipated to negatively impact pre-tax interim earnings by about £42 million, Titi said.
In other parts of the business, the South African operations were a “Tale of Two Cities,” with the private banking business producing solid growth, while there was lower client activity in corporate banking due to weak economic activity and low business confidence.
In addition, “although we never compete on price because we provide bespoke solutions for our clients, there is no question that there is a much more competitive environment, given the low growth environment,” he said.
The proposed demerger and separate listing of Investec Asset Management was on track, with regulatory approval obtained in August. The Bank and Wealth business three-year financial targets remained intact.
For the five month period to 31 August 2019 assets under management increased 6.7 percent to GBP178.4 billion, net inflows of GBP3.5bn were generated, core loans and advances increased 4 percent to GBP25.9bn and customer accounts (deposits) increased 2.7 percent to GBP32.2bn.
The UK specialist banking business was expected to report adjusted operating profit significantly behind the prior period.
Uncertainty relating to Brexit and global trade wars had negatively impacted investment banking fees and trading income.
Furthermore, interest income had been impacted by the additional liquidity required to pre-fund the exit of Irish deposits as a result of Brexit.
“However, our lending franchises have continued to perform as expected. The corporate lending and private banking businesses have shown traction in both target client acquisition, fee income and loan book growth with the total UK loan book growing 4.7 percent since March 31,to GBP11bn.