Investec counts the cost of Covid-19


Investec counts the cost of Covid-19

Published Date: 2020-05-22 | Source: Stephen Gunnion | Author: Stephen Gunnion

Investec counts the cost of Covid-19

The bank and wealth manager says the pandemic has already impacted trading income, investment income and expected credit losses.

Investec says an already tough year due to Brexit-related uncertainties in the UK, geopolitical tensions and persistent economic weakness in SA was exacerbated by the flare-up of Covid-19. The pandemic resulted in a dislocation in global markets during the final quarter of its financial year and cost it about £105 million due to the impact on operating income and expected credit losses at ts SA and UK specialist banks.

The bank and wealth manager said earnings for the year to end-March were characterised by growth in client-related revenues and much tighter cost containment. This was more than offset by significantly lower investment and trading revenues, and the higher expected credit loss charges.

For the year, adjusted operating profit declined 17% to £609 million while adjusted operating profit from continuing operations fell 24% to £419 million. Core loans and advances were flat over the year at £24.9 billion but increased by 9.2% in neutral currency terms. Customer deposits rose 2.9% to £32.2 billion and were 13% higher in neutral currency. Funds under management recorded net inflows of £599 million.

Total operating income before impairments fell 7.5% to £1.81 billion and it cut operating costs by 7% to £1.19 billion. Its credit loss ratio increased to 0.52% from 0.31% last year. Adjusted earnings per share (EPS) fell 24% to 46.5p and headline EPS declined by 45% to 29.2p. It hasn't declared a final dividend following regulatory guidance provided to banks in both SA and the UK to preserve capital.

Investec demerged its asset management business, now called Ninety One, in March and it has been accounted for as a discontinued operation. It said the fair value of the distribution of Ninety One shares to shareholders amounted to 73.4p per share. The group's net asset value at the end of March amounted to 414.3p, down 4.6% from a year earlier, and its tangible net asset value was down 2.2% at 377.6p, positively impacted by profitability and the demerger but negatively impacted by the 17.8% depreciation of the rand year-on-year.

Investec said the outlook remained fluid and difficult to forecast with any reasonable degree of certainty due to the Covid-19 pandemic. However, it expected client activity to be muted, interest income to be impacted by lower interest rates and impairments to be elevated. It would continue to look for opportunity despite the current market dislocations and had entered the crisis with a strong balance sheet, low gearing and good levels of liquidity.

Investec Limited's shares fell 7% to R33.87 yesterday while Investec Plc declined 7.6% to R33.

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