Third Quarter Trading Update
· Continued good progress in developing and diversifying the business, and also operationally as new investment is transforming the efficiency and resiliency of the Group's operating platforms.
· Completion and smooth transition of two residential mortgage portfolios at a 2.7% discount to par, adding
· Overall loan balances have grown 33% compared to the prior year and have since exceeded
· Deposit balances have increased 17% compared to the prior year and have since surpassed
· New divisions continue to make strong progress:
o Arbuthnot Asset Based Lending has grown customer facilities to
· Work has commenced on a major refurbishment and enhancement of the Group's
Commenting on the third quarter trading, Sir
"The Group remains well positioned to continue its strategy of diversification of its lending and deposit raising capabilities and the deployment of the surplus capital. Our ability to maintain high levels of surplus liquidity has enabled us to take advantage of opportunities that present themselves over time, such as the acquisition of the mortgage portfolios. As a result of this and notwithstanding the current geo-political uncertainties, we remain confident of being able to continue to grow the businesses within the Group."
Mortgage Portfolio Acquisition
In August the Group completed the purchase of the residential mortgage portfolios which added
As previously described, the Arbuthnot Direct deposit platform was created, in part, to enable the bank to participate in transactions such as the portfolio acquisition, giving the Group the ability to build its liquidity resources quickly. Accordingly, following the signing of the purchase agreement, Arbuthnot Direct has raised
Core Loan Book
The core lending business continues to work on a number of new business opportunities but has seen increasing uncertainty in the macro economic outlook lead to a delay in the drawdown of these loans. As a result, the underlying loan balances (excluding the mortgage portfolio purchase) are behind where we anticipated, but we believe this simply to be a timing issue, rather than a fundamental change. Regardless of this, the Group continues to maintain strong discipline in pricing lending risk, as it expects the current heightened competition in the retail lending markets to pass. Despite the wider economic uncertainty, lending balances are 33% higher than the same time in 2018 and since the quarter end have surpassed
Associated with the loan book the Group has a number of interest rate derivatives that are hedging approximately
Though the performance of the underlying loan book remains strong, we continue to work through a small number of longstanding impaired loans. However, the resultant IFRS 9 provisions that arise when the outlook for economic scenarios used in the stress testing worsen, have seen a small increase. In addition there are now provisions associated with the grossing up of interest, which were not previously required.
The change in strategy to focus the
The Wealth Planning division will be loss making this year as a result of a fundamental change in its business proposition and hence its charging structure. In July the business ceased charging clients for ongoing annual advice reviews and moved to an event based model, where clients are charged wealth planning fees when they need specific advice.
New Business Divisions
The Group's new business divisions continue to make good progress.
The Arbuthnot Asset Based Lending business has continued to source new lending opportunities and has increased its customer facilities to
The business also experienced its first potential credit event as one of its customers suffered a downturn in its trading performance. However, Arbuthnot's team managed to facilitate a rescue of the business via a trade sale.
Arbuthnot Specialist Finance has only lent
Operational Resilience and Efficiency
During the quarter, the Group agreed to implement the Salesforce CRM System, which will transform the way in which the bank interacts with clients. The implementation of this system is now fully in train with the Group's technical partners and the first phase is expected to be completed by Q1 2020.
At the same time, the Group has agreed to develop a new website for
In conjunction with our partners at Oracle, the Group has been developing the API (Application Programming Interface) connections to the wider payment systems to be fully compliant with the Second Payment Services Directive ("PSD2"). As a secondary benefit to this, the Group will examine its payment clearing mechanisms, which we expect will enable
The major tenant of the Group's
The refurbishment of the property in Birmingham has largely been completed and a tenant for one of the five floors have already been found. Also, this property will now be reclassified as being "held for sale" rather than as an investment property.
The Directors of the Company accept responsibility for the contents of this announcement.
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