CORRECTED-UPDATE 2-Car, property loans boost Close Brothers profit

Tue Mar 11, 2014 7:03am EDT

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(Corrects headline and lead to show the company provides loans to property developers, not home owners)

* First-half adjusted oper profit rises 21 pct

* Loan book increases 5 pct

* Co to pay interim dividend of 16.5 pence

* Shares rise as much as 4.4 pct

By Richa Naidu

March 11 (Reuters) - British lender Close Brothers Group Plc posted a 21 percent rise in first-half operating profit as an increase in loans for cars and property developers drove growth at its core banking division.

Close Brothers' shares rose as much as 4.4 percent, making the stock the top percentage gainer on the FTSE-250 midcap index .

"The consumer is actually borrowing quite strongly - we can see that in motor, we can see that in property, particularly in London," Chief Executive Preben Prebensen told Reuters.

"It's still way below the kind of competitive environment we saw way back in 2007, for example, when credit was very easy," he added.

Close Brothers' banking business posted a 14 percent rise in adjusted operating profit to 89.6 million pounds ($149 million) as its loan book grew 5 percent to 4.9 billion pounds.

The business, which accounts for 82 percent of overall profit, lends to people and small and medium-sized businesses, and provides deposit-taking services.

Prebensen, however, said demand for credit from small and medium-sized businesses had not increased, despite the British government's efforts to direct credit supply their way.

The Bank of England introduced the Funding for Lending Scheme in 2012 to boost lending to households and businesses.

"It certainly hasn't really affected us," Prebensen said, noting that the company had yet to use the state-backed scheme.

The 136-year old company, whose services also include merchant banking, securities dealing and wealth management, said its Winterflood securities business would benefit from increased market activity on AIM, London's junior exchange.

"We've seen an increase, for example, in IPO activity on AIM for the first time in six years, but this is still very well below the peak in terms of money raised," Prebensen said.

Close Brothers said it would pay an interim dividend of 16.5 pence per share, a 10 percent increase on last year.

STRONG IPO PIPELINE

Close Brothers said increased primary market activity, stronger retail trading volumes and rising equity markets had whet the risk appetite of retail investors in the first half of its financial year.

Prebensen said more companies had decided to list on the exchange, particularly during the first quarter.

Last year was London's busiest for stock market listings since the financial crisis struck, with attractions operator Merlin Entertainments and estate agency Foxtons among the big-ticket offerings.

"Our understanding is that the IPO pipeline continues to be quite strong, among all the brokers," Prebensen said.

Winterflood, the backbone of Close Brothers' securities unit, does not handle IPOs itself but does gain from trading them as it offers trading services to institutional investors. Adjusted operating profit from the business rose 81 percent to 13.4 million pounds.

Overall adjusted operating profit rose to 97.2 million pounds ($161.66 million) in the six months ended Jan. 31, from 80.5 million pounds a year earlier. Assets under management rose 2 percent to 9.3 billion pounds.

"Results this morning were slightly ahead of our expectations," Peel Hunt analyst Stuart Duncan wrote in a note, reiterating his 'buy' recommendation on the stock.

Shares in Close Brothers were up 3.7 percent at 1493 pence at 1034 GMT on the London Stock Exchange on Tuesday. ($1 = 0.6013 British pounds) (Reporting by Richa Naidu in Bangalore; Editing by Gopakumar Warrier and Saumyadeb Chakrabarty)

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