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Investec cool on earnings prospects

Johannesburg - Financial services firm Investec [JSE:INL] said on Thursday its asset management and investment platforms have recorded strong inflows during the first half of the current financial year.

However, operating conditions within the group's banking and advisory businesses remain mixed, with low levels of economic activity and a difficult trading environment persisting in the first half of the financial year ending September.
     
It added that operating profit for the period is expected to be marginally higher than the prior year.
     
"The UK business is performing in line with the prior year, recording a very strong operational performance, although profits earned on debt buy-backs in the prior year were not repeated. The South African business has posted a satisfactory performance.

"The slower pace of economic recovery has caused a delay in the improvement of the level of non-performing loans and defaults have continued to increase. Impairments remain at elevated levels, but are starting to improve and the annualised credit loss charge as a percentage of average gross loans and advances is expected to be within a range of 0.85% to 0.90% (March 2010: 1.16%)," Investec CEO Stephen Koseff said.

Since end-March 2010, he added, core loans and advances have remained flat at £17.8bn, customer deposits have increased by 5% to £23.1bn and third-party assets under management have decreased by 2% to £72.9bn. Growth in average assets under management has, however, increased by 32% over the period.
     
Core advances as a percentage of customer deposits were 71.8% (March 2010:76.2%). The group has a strong balance sheet with low gearing, substantial cash and near cash and solid capital ratios.

The group currently holds £10.2bn of cash and near cash balances which amounts to 35% of its liability base.

Looking ahead, Koseff said operating profit continues to be underpinned by a solid recurring income base as well as a strong performance from the group's non-capital intensive asset management and private wealth businesses.
      
"The capital markets division has benefited from good levels of activity and opportunities within the traded credit markets, and there has been a moderate build-up in activity levels in the group's other banking businesses.

"Weak economic growth continues to impact the overall demand for credit and levels of transactional activity, and the performance of the core banking businesses remains dependent on the sustainability of economic recovery and the normalisation of economic activity," he said.
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