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Arbuthnot Banking Group PLC
14 October 2020
14 October 2020
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 2020.
Highlights
-- The Group remains profitable year to date despite the ongoing
public health restrictions and the related supressed economic
activity
-- Continued good progress operationally, with a new CRM system
increasing efficiency and the launch of a brand evolution and a new
website to enable more effective digital marketing
-- Customer loan balances up 3% on the prior year at GBP1.60bn.
o Issued loans totalling GBP9.6m under the Bounce Back Loan
Scheme and GBP11.5m under Coronavirus Business Interruption Loan
Scheme to date
-- Deposit balances up 14% compared to the prior year at GBP2.23bn
-- Investment Management gross inflows increased 24% on the
prior year, with Assets Under Management up 4%
-- New divisions continue to make progress
-- Over GBP60m of surplus capital and excess liquidity of
GBP489m above the GBP349m minimum requirement
Commenting on the third quarter trading, Sir Henry Angest,
Chairman and Chief Executive of Arbuthnot, said:
"The Group continues to perform resiliently despite the
challenges posed by the pandemic's impact on economic activity and
the historically low interest rates. We went into the current
crisis with strong financial resources and having made important
operational progress following investment in our platforms and
proposition. We continue to concentrate on supporting existing
clients through the current uncertainty, and we remain well
positioned to benefit from the new opportunities we expect to arise
upon the resumption of more normal business activity."
Group Performance
Despite the ongoing public health restrictions, the Group has
continued to operate efficiently, with all staff following the
Government's guidance and working remotely.
The Group reported a small profit before tax for the first six
months of 2020, however, the Group traded at a marginal loss in the
third quarter but remains profitable year to date. Arbuthnot Latham
remains profitable and has reported a profit before tax and group
recharges for the nine months to September of GBP7.2m. However,
revenues continue to be impacted by the reduction in base rates and
lower demand for lending. Despite this, the Group showed progress
in several areas. Virtually the whole Bank was required to be
involved in a multiyear project to implement our new Customer
Relationship Management ("CRM") system supplied by Salesforce. This
new platform was successfully delivered in July and has already
brought about operating efficiency savings across the Bank. Soon
after this, the business continued along its journey of brand
evolution with the launch of the redesigned branding to acknowledge
that Arbuthnot Latham is now a Private and Commercial bank.
Alongside this, the website was overhauled to allow client leads to
be generated via digital marketing campaigns, the first of which
will be launched in the fourth quarter of 2020.
At the end of the quarter, the customer loan balance closed at
GBP1.60bn which is 3% higher than the same point in the prior year
GBP20m lower than the balance at 30 June 2020. Much of the decline
has been due to the reduced demand in the lending markets that we
operate in, but also as a result of the reduction in credit
appetite that we introduced at the start of the lockdown in early
spring. However, given the increased confidence in residential
property markets, we have now restored lending appetites to the
pre-COVID-19 levels, which still remain conservative.
We continued to attract a good flow of customer deposits with
balances increasing by GBP23m from 30 June 2020 to close the
quarter at GBP2.23bn. This represents an increase of 14% compared
to 30 September 2019.
During the third quarter we have noted that housing indices have
recorded increased valuation levels, which contrasts with the
economic scenarios that we modelled for the purposes of IFRS9
within the recent interim results. At the time of the interims, the
modelling resulted in a blended decline in residential valuations
of 8.6%. The resultant provisions that were required remain in
place at the end of the third quarter despite the higher valuations
levels, as we prefer to see how the unwinding of the Government
support packages impacts the valuations before concluding this is a
consistent trend.
During, the quarter the first FCA mandated payment holiday
periods came to an end and the potential of a second holiday period
was offered. This had a positive impact on the number of customers
requiring further forbearance. In the core bank, the levels of
balances with customers requiring payment holidays fell from 10% to
3%. The acquired mortgage portfolios saw a decline from 26% to 5%
of customers who were in receipt of COVID-19 related forbearance.
Finally, the level of balances with customers requiring further
forbearance in our asset finance business fell from 70% to 39%.
At the end of the quarter, the Group remained in a strong
position with regards to its key regulatory measures. The Group in
excess of GBP60m of surplus capital as compared to capital deployed
of approximately GBP140m. Also, the Bank had excess liquidity of
GBP489m above the minimum requirement of GBP349m.
Currently, the Group remains on track to meet the forecast
market expectations of a small overall loss for the year. This
remains dependent on no significant declines in the valuations of
the Group's investment and repossessed properties and also the
continued credit trends in the lending portfolios.
The Board is monitoring the recent dividend declarations of
other banks and also the fact that the PRA will review its guidance
on banks paying dividends during the fourth quarter. The Board will
therefore consider the outcome of this to guide its dividend
strategy in 2021.
Business Division Highlights
Private Bank
The strategy of the Private Bank continues to focus on
developing existing relationships as well as acquiring new criteria
clients. Where appropriate, we have selectively met clients and new
clients, face to face, while complying with all the social
distancing guidelines, which has augmented the previous seamless
client experience provided by both the relationship teams and our
technology platforms.
As with the wider Private Bank, the Wealth and Investment
Management businesses have benefited significantly from the Group's
IT infrastructure enabling them to continue a high level of
personal client contact aiding a seamless transition to servicing
our clients on a virtual basis. The Wealth Management teams have
taken a proactive approach with our clients, discussing their
personal and financial situation changes to support them
appropriately in the current climate.
The Investment Management division generated gross inflows at an
annualised rate of 11%, an increase of 24% compared to the same
period last year. Assets Under Management closed the quarter at
GBP1.1bn, representing an increase of 4% compared to the prior
year.
Commercial Bank
The Commercial Bank has concentrated on supporting existing
clients, as well as selectively winning new relationships. Where
certain commercial clients were impacted negatively by the
pandemic, payment deferrals have been provided, which has allowed
them to overcome short-term difficulties. During the quarter, the
majority of those payment deferrals came to an end and repayments
are returning to pre-pandemic levels.
The Commercial Bank successfully applied to the British Business
Bank to be an accredited lender for the Coronavirus Business
Interruption Loan Scheme ("CBILs") and Bounce Bank Loan Scheme
("BBLs"). We commenced lending under these schemes on 23 June 2020
and have seen good take-up; so far, we have issued loans totalling
GBP9.6m for BBLs. With the recently announced extension of the
schemes, we plan to continue to support existing clients, as well
use these facilities as a route to acquire new criteria
clients.
Mortgage Portfolios
The Mortgage Portfolios continued to provide forbearance to
their borrowers as required. However, as the first payment holiday
period came to an end many of the borrowers returned to making
repayments. The largest portfolio "Santiago" saw the level of
payment holidays reduce from the peak of 29% to 8% at the end of
September. Similarly, the second portfolio, "Tay", experienced a
reduction in the level of payment holidays from 17% to 3%.
The portfolios are being closely monitored as we approach the
end of the second payment holiday period and the start of the
unwinding of the job support schemes, at the end of October.
Renaissance Asset Finance ("RAF")
Forbearance measures are still being offered albeit greatly
reduced from 70% of loan balances at its peak to 39%.
Specific sectors such as the London Taxi Market, to which RAF
supplies asset finance, remain subdued. London taxis form a large
part of RAF's forbearance portfolio; however, a significant portion
of the book has been refinanced with other lenders via the
Government's borrowing schemes. However, we still have GBP17m of
lending in forbearance against London taxis. All these loans remain
well secured with the vehicles acting as security along with
personal guarantees.
Overall, the credit quality of new business originations has
increased due to a combination of a tighter credit appetite and
reduced competition from non-bank backed asset finance lenders.
Industry statistics indicate a recovering trend of new business
originations since June, albeit reduced compared with the prior
year. This and the combination of lower investment by SME's in
vehicles and capital equipment and RAF's tightened approach to risk
has resulted in continued reductions in the loan book.
Arbuthnot Commercial Asset Based Lending ("ACABL")
During the quarter ACABL reached a significant milestone as it
reached an overall breakeven point, which means that the Group has
now recouped its investment in start-up losses, giving a
sixteen-month payback period.
New facilities written in the third quarter totalled GBP40m,
increasing the available book limits to GBP204m with the book
growing to 46 clients spread across 25 different sectors. The
business has seen clients continue to operate with good levels of
undrawn facilities, with drawn balances ending the quarter at
GBP82m, GBP15m higher than at 30 June 2020. As borrowers' business
activities return, it is expected that the balances will start to
return to pre-lockdown levels.
ACABL has a strong reputation within the private equity
community as introducers of new business. Due to corporate
divestments and distressed businesses that previously enjoyed sound
operating models coming to market, ACABL is benefitting from these
relationships, as they are seeing an increasing number of
opportunities arising.
Following the accreditation of the Bank by the British Business
Bank in June to provide CBILs and BBLs loans, ACABL has written 11
CBILs loans totalling GBP11.5m.
Arbuthnot Specialist Finance Limited ("ASFL")
ASFL has experienced slow lending activity since lockdown began
and the property market effectively closed for a few months. Since
the easing of lockdown began in June, the business has seen an
uptake in enquiries as it continues with a cautious approach during
the uncertain climate.
The business's operating platform nCino launched in July and has
proved efficient with operating efficiencies emerging. The nCino
broker portal is expected to be launched during the next quarter
along with a broker training program.
Operations & Technology
After a period of lower client activity in April, May and June,
the relaxation of lock down measures over the summer saw volumes
return to more normal levels. Non-card payments, in excess of
25,000 in July and August, mirrored the levels seen for the same
period in 2019, although card payments remained lower at circa 75%
of the level seen before the pandemic.
Client engagement remains a key focus, with full telephony
support available for clients, although the level of client calls
remains lower, with calls over the period April to August at 75% of
those received previously. The new CRM Platform was launched as
planned in July 2020 and good progress is being made with plans to
extend the current faster payment model to 24/7 payment processing,
which will bring the Bank's services in line with the larger retail
banks.
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
AQSE Exchange Corporate Adviser)
Colin Aaronson / Samantha Harrison 0207 383 5100
Numis Securities Ltd (Joint Broker) 0207 260 1000
Stephen Westgate
Shore Capital Ltd (Joint Broker)
Hugh Morgan/ Daniel Bush 0207 408 4090
Maitland/AMO (Financial PR)
Neil Bennett / Sam Cartwright 0207 379 5151
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