Share price underperformance YTD, but more to come… We acknowledge that Close Brothers shares have underperformed a buoyant UK banking sector ahead of today’s statement, down 7% in 2 weeks (Fig 6, page 4). Be that as it may, we think today’s pre-close trading update offers further challenge to the popular contention that CBG’s “premium rating” is still justified; we expect the shares to fall further today. Another dreadful update on the Novatis loan portfolio… Within the Banking division, after very weak loan growth in Q1 FY23 of £0.03bn (+0.03%), the overall performance reported today was slightly better in November/December 2022 with net growth of +£0.10bn (+1.0%), see Figs 1&2, page 2. NIM “remained strong”, while the CET1 capital ratio declined 20bps in the 5 months to Dec 2022 to 14.4%, above CBG’s 12-13% target. However, this is all overshadowed by marked deterioration in the impairment story, especially in relation to Novatis, the troubled legal services loan book acquired in 2017, but now in run-off. For the 5 months to Dec 2022, the annualised impairment charge ex-Novatis was 1.1% (vs 0.5% in FY22). Including Novatis, the charge was 1.7% (vs 1.2% in FY22), reflecting an additional £24.8m provision. However, CBG now guides to an additional provision against the Novatis loan book of “up to £90m” in H1 2023, which would take c.80bps off the CET1 capital ratio. Winterflood barely profitable in 5 months to December Trading conditions within the Securities business, Winterflood, have deteriorated still further. Operating profit for the 5 months to Dec 2022 was only £1.7m (vs £14.1m in FY22 and £60.9m in FY21 (Fig 3, page 3)). We believe that the Securities business is on track for its worst year ever, while consensus expects a positive rebound to £18m in FY23. That doesn’t appear likely. Within Asset Management, Total Client Assets fell £0.3bn in the 5 months to Dec 2022 to £16.3bn, due to market movements. On 1.1x FY23e tNAV for ROTEs of 10.5%/11.0%/11.3% FY23/FY24/FY25e, (Fig 5, page 4). Sell rec reaffirmed. Forecasts/TP under review. CBG’s H1 FY23 results are due to be released on 14 March 2023.