Close Brothers' Q3 bad debt charge jumps to £86.7m

(Sharecast News) - Close Brothers set aside £86.7m for bad debts in its third quarter to reflect the effects of the Covid-19 crisis on the economy and the merchant bank's clients.
The loan loss provision for the three months to the end of April was more than double the £36.7m set aside in the first half of the financial year. The ratio of bad debts to assets rose to 2.1% from 0.9% in the same period.

Covid-19 also hit business levels as the bank loan book reduced 1.2% to £7.53bn and the net interest margin narrowed to 7.7% in the year to date from 7.8% in the first half.

The bank said the increase took account of "the appropriate staging of the loan portfolio, to the incorporation of updated macroeconomic scenario assumptions, and to the review of provision coverage at the individual portfolio level."

Close Brothers said rising bad debts were slightly offset by higher trading at its Winterflood securities business. Daily average trading volumes in the third quarter were almost double those of the first half.

The FTSE 250 company reported a common equity tier 1 capital ratio of 13.9% - up from 13.4% at the end of January and 5.8 percentage points above the minimum requirement.

Preben Prebensen, Close Brothers' chief executive, said: "Our loan book is predominantly secured and conservatively underwritten, with a deep expertise and relationship driven approach present throughout our lending, trading and investment management businesses. We have a strong capital, funding and liquidity position and are well placed, both operationally and financially, to navigate this rapidly evolving environment."