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Arbuthnot charts next chapter with bicentennial on horizon


Arbuthnot Banking Group [AQSE:ARBB] is the archetypal London merchant banking house, one that conjures up images of oak-panelled boardrooms, quiet, well-manicured, bespoke-suited advisors sipping Darjeeling Tea, with the motto ‘Keep Calm and Carry On’ over the door.

Headquartered in the heart of the City of London, with offices in Manchester, Exeter and Bristol, Arbuthnot has been in business since 1833 and was one of the original dozen ‘accepting houses’; institutions that were historically granted the licence to guarantee bills of exchange that facilitated the lending of money. Most accepting houses were ultimately acquired by large international banking groups.

History of Arbuthnot Banking

Originally founded by John Arbuthnot and Alfred Latham as Arbuthnot Latham & Co, the modern-day merchant bank started life as a commodity trading house for the British Empire’s merchants before moving into finance and lending. Latham later became the Governor of the Bank of England. The Arbuthnot family was involved with the bank until 1981, when the family sold its interests to Dow Scandia, part of the American multinational chemical company, Dow Chemical Company NYSE:DOW. Dow sold the company and Henry Angest, a Swiss banker joined Arbuthnot and has influenced its direction since.

In the 1990s the Arbuthnot Latham name was retired, but Angest, following his management buyout of Secure Homes, acquired the fund management of the Arbuthnot Group, Arbuthnot Fund managers and the Arbuthnot Latham name.  Angest then acquired Aitken Hulme bank (a merchant bank named for its founder Jonathan Aitken, ‘the sword of truth,’ former journalist, Conservative politician, convict and Anglican priest) for GBP3.2m.  In 1994 Aitken Hulme was renamed Arbuthnot Latham & Co.

Dual-listed on AIM and Aquis

Arbuthnot is dual-listed on AIM under LON:ARBB and Aquis, after listing on the NEX Exchange in 2005 and then becoming a constituent of Aquis subsequent to NEX’s acquisition by Aquis in 2019. Such a veritable name being part of a reasonably new exchange aligns with Arbuthnot’s ambitions for growth, moving to a six-storey freehold site in Wilson Street in 2012, and opening up new offices nationally. The bank recently acquired offices in Finsbury Circus, which will allow it to expand even more.

The bank diversified from traditional merchant banking operations into asset-based lending, through the acquisition of Renaissance Asset Finance in 2013 and ramped up its commercial lending activities. The company entered vehicle leasing through the GBP10m 2021 acquisition of Asset Alliance. In its last results, published in March to end-December 2023, Arbuthnot saw its profit before tax increase 135% year-on-year to GBP47.1m. This was on the back of a 30% increase in operating income to GBP178.9m and earnings per share increasing by 103% to 222.8p. The company upped dividend per share by 10% to 46p/share.

Arbuthnot well-capitalised for future storms

Arbuthnot’s Common Equity Tier 1 ratio (a component of Tier 1 capital comprising primarily of common stock held by a bank or other financial institution) was 13%, up from 11.6% in 2022.  The bank’s total capital ratio of 15.2% was well above the group’s minimum requirements. Moreover, Arbuthnot’s surplus end-of-year liquidity of GBP962m (up 79% y-o-y) was also well above the minimum regulatory requirements.

A lot of Arbuthnot’s 2023 progress was driven by a 21% increase in customer deposits, hitting GBP3.8bn, which it attributed to its customer relationships in its private and its commercial banking segments. Its customers were also borrowing more, with loans increasing 6% y-o-y to GBP2.3bn for the year, despite the bank tightening up its credit appetite.  Along with rising interest rates this helped bolster the bank’s revenues.

The bank completed a GBP12m placing on Aquis and AIM in May 2023.  The plan was originally to seek GBP10m, but an increased subscription accommodated the demand for new shares in the bank. Arbuthnot also increased its Tier 2 debt by GBP1m to GBP26m, whilst also renegotiating its interest rates with lender, Swedish debt fund P Capital Partners.

Although it has had a good year, Angest, who serves as chairman, warned: “The interest rate environment appears to have reached the top of the current cycle and many analysts are now predicting reductions in the future. Whilst this will have an impact on the profitability of the group; in the long run, the opportunities for Arbuthnot to grow and prosper continue to be undiminished. Therefore, we remain focused on delivering on our strategic plan,” which means more diversification.

“My long-held belief that has been borne out in the strategy of the group over the years is that of diversification and I was pleased to see this evidenced during the year,” said Angest.

The bank’s shares were being traded at 1,000p on Aquis today (10th July). Over one year its shares have appreciated 7.2%. Over the year-to-date its shares are down 0.25% and the company has a market capitalisation of GBP165.8m.

The bank will soon be approaching its bicentennial year, and looking forward with confidence to the next chapter in its development. With a rich history dating back to the heart of the British Empire Arbuthnot has proven its ability to adapt and thrive over the centuries.  By embracing new opportunities in asset finance, leasing, and commercial lending, while maintaining its core private banking focus, Arbuthnot is well-positioned to navigate future economic cycles.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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