Investec annual profit rises 10% as bad loans fall

Investec, which posted a 10 per cent gain in annual profit as bad loans fell, expects a further improvement in writedowns as the UK economy strengthens. Investec, which owns a bank and money manager in South Africa and the U.K., said Thursday net income for the 12 months ended March rose to £410 million from £372 million.

Impairment losses on loans and advances improved to £39.35 million from £64.3 million.

"In South Africa, the impairments are probably as good as it gets, but in the UK legacy book they can still come down," Stephen Koseff, chief executive officer of the London and Johannesburg-based lender, said on a conference call. "We do expect it to come off a bit, as long as the UK environment remains benign."

Bank of England policy makers expect UK economic growth to accelerate this quarter and a drop in inflation to below zero in April to be temporary, minutes of the Monetary Policy Committee’s May meeting published in London on Wednesday show. Investec advanced as much as 1.1 per cent to 636.5 pence in London trading, the highest intraday level since July 2007.

Investec is among 11 companies being investigated for alleged foreign-currency market rigging, South Africa’s Competition Commission said May 19. The bank said it will cooperate with authorities.

“It was something we were only notified of two days ago so we’ll have to see where it goes,” Mr Koseff said.

“We haven’t been told what it’s about.”

Structural challenges

While Investec has more capital than regulators require in both the UK and South Africa, the business will “primarily concentrate on organic growth” in the coming 12 months, Koseff said.

The bank has been disposing of its least profitable assets in Australia and the UK and sold its Kensington Group Plc mortgage business this year. It also sold its Irish intermediated mortgage business Start Mortgage Holdings last year, along with other Irish mortgage assets.

“This has resulted in the derecognition of approximately £4.1 billion of assets and approximately £2 billion of external liabilities associated with these businesses sold,” the company said.

Investec makes the bulk of its operating profit in South Africa, where the economy grew at the slowest pace last year since a 2009 recession and where almost daily power cuts are constraining expansion.

Investec is “positive about the year ahead, notwithstanding the structural challenges in the South African economy and the intensified regulatory landscape,” it said.