ABG is seeing returns on its investments in retail banking (Secure Trust bank) and private banking (Arbuthnot Latham). In H115, the former delivered pre-tax profits of £16.1m (up 40% on H114) and the latter £3.7m (up 111% on H114). The group remains well-funded (customer deposits £1.6bn vs loans £1.4bn) and well capitalised. It continues to invest in new business opportunities, taking advantage of favourable market conditions.
The key feature for H115 was the delivery of loan and franchise growth from the SME initiative. In particular, we note real estate lending increased from £134m at end-2014 to £266m at end-June 2015. Asset finance grew from £5m to £30m and commercial finance from £5m to £16m. The core personal business has continued to show excellent growth with motor finance up from £138m at end 2014 to £152m and retail finance from £116m to £163m. Impairments continue below the levels expected when loans were initiated and so built into pricing. Modest deteriorations in motor and retail are due to mix effects and offset by greater yield. The business finance impairment is due to collective provisions. No specific real estate losses have been incurred. While fee income was lower than expected, it is due to a change in product pricing and compensated for in interest income. The company continues to be deposit-financed with the loan-to-deposit ratio at 102%. Capital remains robust with leverage ratio of 11.9% (regulatory minimum 4%).
Profits more than doubled, helped by the contribution from the acquired mortgage portfolio, lower impairments and strong growth in deposits and lending. AL is investing in new business lines (including commercial banking) and new offices and staff both in London and in the regions. Its investment in Dubai is now at breakeven. With these results it announced a transformation programme, which will see a material upgrade to its core banking platform over the next 18 months improving efficiency, lowering error rates and giving better customer service.
Our fair value has been reduced from £19.3 to £18.8 primarily because of the impact of the bank surcharge tax. There is also a modest effect of a lower market value for the STB stake. Pre-tax profit estimates have seen only a modest revision primarily due to higher investment spend in the private bank.