Shares in Investec, the banking and asset management group, were down sharply this week after the company said earnings could fall by as much as 10 per cent, amid a tough time for its specialist banking arm in the UK.
The Investec Group said: “The UK Specialist Bank is performing behind the prior year.
“The Group continues to concentrate on realigning costs with revenue and certain businesses have been rationalised. Results remain negatively impacted by low yields earned on legacy assets and weak activity levels, as the recent good news regarding the UK economy has not yet filtered through to day-to-day operations.”
The Group – delivering a trading update before its close period – said it has seen positive inflows across both its wealth and asset management divisions, with net inflows of £1.2 billion into asset management and £300 million into its wealth arm.
Investment performance at the asset management business has been “solid” despite volatile financial markets.
For the period between the end of March and the end of August, third party assets under management decreased 4 per cent to £106.2 billion, customer accounts (deposits) decreased 5 per cent to £23.4 billion and core loans and advances decreased 6 per cent to £17.4 billion.
The statement said that the wealth division has also outperformed the previous year, but shares fell over 4 per cent today after it conceded its banking arm is lagging the previous year’s performance, with half year results likely to come in lower than the previous year.
The statement added: "The challenge for the Investec group remains right sizing its Specialist Banking businesses and realigning these business models to generate the appropriate shareholder returns. The group is comfortable with the progress made in its South African banking operations and has recently made significant adjustments in Australia, with the process in the UK banking operations on-going.
"Overall, prospects still depend on an increase in levels of activity and the sustainability of economic recovery. Whilst the group feels more positive about the trend and news flow it remains cautiously optimistic given the 'stop start' nature of the recovery thus far."
The challenge for the Investec group remains right sizing its Specialist Banking businesses and realigning these business models to generate the appropriate shareholder returns; this process is ongoing in the UK.
The group’s UK business is reporting in terms of Basel 2.5 and capital ratios remain stable
Earlier this year Investec rose to third in the top five UK private banks, with $61.6 billion of global assets under management.
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