Profits at UK merchant bank Close Brothers have taken a more than 90 per cent hit, according to its latest financial results.

In the six months to 31 January 2023, pre-tax profits at the bank dropped from £128.9 million in the first half of the financial year, to just £11.7 million.

The bank’s latest accounts, which saw shares drop by 6.5 per cent after they were published this morning, follow its decision to wind down Novitas, a provider of loans for legal proceedings, which it bought in 2017.

Close Brothers said that it decided to stop the approval of new loans with the business in 2021 after a strategic review found that the company lacked underlying security for its loans as well as a strong track record of performance and in-house lending expertise.

Close Brothers outlined additional credit provisions of £114.6 million in the first half of the year, taking total provisions against Novitas to £183.2 million.

The bank said it is confident that these provisions will adequately cover any remaining risk of credit losses for the Novitas loan book, adding that it is focussed on maximising the recovery of remaining loan balances.

Adrian Sainsbury, chief executive of Close Brothers, admitted that it had been a challenging six months for the organisation.

“While developments at Novitas are disappointing, we are confident that the group is in a strong position to navigate the current environment and make the most of available opportunities,” he said.

Sainsbury said that the bank is well positioned to deliver its strategic priorities and will focus on achieving "disciplined growth, cost efficiency and optimisation of our capital structure."

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