Investec flags lower earnings


Investec flags lower earnings

Published Date: 2020-09-21 | Source: Stephen Gunnion | Author: Stephen Gunnion

Investec flags lower earnings

The banking group has faced reduced economic activity, volatile markets, declining interest rates and a weaker rand.

Investec is reducing its London headcount as it cuts costs to simplify and focus its business amid a decline in earnings. The banking group has warned that first-half earnings will be significantly lower and it won't be paying an interim dividend.

In a pre-close update for the first half of its financial year, Investec said Covid-19 and the resultant lockdowns in SA and the UK had created additional challenges, with economic activity reducing and market volatility rising. Interest rates had declined, client activity fell and it was also faced with the rand's 22% deprecation against the pound, which impacted the translation effect of its SA earnings. As operating income came under pressure, it reduced operating costs below last year's levels.

Investec's Wealth & Investment businesses reported net inflows and growth in funds under management. Its Specialist Banking businesses had seen good client acquisition in both geographies, the Private Banking franchise had grown its loan book while its corporate lending businesses experienced reduced lending activity.

For the six months to end-September, it expects adjusted earnings per share (EPS) from continuing operating to be 53% to 63% lower than the 22.4p it earned last year, while headline EPS were likely to be 47% to 57% down from last year's 17p. Continuing operations exclude the results from Investec Asset Management, which was demerged and listed as Ninety One back in March. However, they do include the equity accounted earnings of the group's 25% retained stake in the asset manager.

After holding back on a final dividend last year, Investec said it didn't expect to declare an interim dividend due to guidance from the SA and UK regulators. If the guidance changed, it said it would resume dividends in line with its normal distribution cycles.

Investec said its capital and leverage ratios remained ahead of internal targets and regulatory requirements and that it had cash and near cash of £12.9 billion at the end of August, representing about 40% of customer deposits. It expected elevated levels of expected credit losses due to the impact of Covid-19 on its forward-looking assumptions.

Investec Limited's shares reversed early losses to close 0.1% higher at R29.90 on Friday. Investec Plc rose 0.6% to R29.20.

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