London, Mar 12: Asia's financial turmoil took its toll on the profits of British investment bank Schroders Plc in 1997, slashing 32 million pounds ($52 million) off pre-tax profits of 277 million pounds.Schroders said it had made the charge to cover Asian exposure and the costs of reorganising its business there.
In January it cut 220 jobs in the region, blaming poor returns in Asian equities securities.
But despite costs incurred in Asia during 1997 as a result of the upheavals in the region, Schroders -- which is nearly 50 per cent owned by members of the Schroder family -- said it was confident of a profitable future.
It is also proposing a one-for-two capitalisation issue by capitalising part of its reserves.
Schroders' chairman Win Bischoff described the performance in the second half as reasonable, despite more difficult conditions in Asia. He said pre-tax profits after provisions were £245 million for 1997, up from £239 million in 1996.
After the cost of Asia, the pre-tax figure was at the bottom of analysts' expectations, although the dividend was in line with forecasts. Some analysts had predicted pre-tax profits of £260 million for the year.
The group said it would pay shareholders a final dividend of 16 pence, up from 14 pence the previous year, making a total dividend for the year of 23 pence, compared with 20 pence in 1996.
Asset management produced increased profits of -- 154.1 million, from £132 million in 1996, and increased total funds under management to £106.9 billion, showing growth of 22 per cent.
While market movements accounted for around a third of the increase, the major part had resulted from "a continuing strong inflow of funds", Schroders said.
But Schroders' investment and merchant banking operation showed a fall in pre-tax profits to 90.8 million pounds from 106.7 million pounds which the group said was principally the result of the Asian charges.
"The investment banking operations in Europe performed well but in North America produced somewhat lower profit than in 1996: the results of our securities business in Europe showed a significant improvement," Schroders said in its results statement.
Schroders said it planned to invest $150 million of its capital over the next few years to develop its North American corporate advisory activities, which it said remained at the core of its business.
Without the Asian charges, Schroders said its cost/income ratio would have improved slightly and it continued to monitor this as an important indicator of its relative performance.
The group sounded a cautious note on the overall outlook for Asian markets and the possible knock-on effect on other parts of the world.
"Whilst conditions in some of the worst affected markets have improved in recent weeks, the overall consequences for the region and the world economy remain to be seen," it said.
Schroders said it had exposure to counterparties in Indonesia of 43 million pounds and 26 million pounds to counterparties in Thailand.
It made provisions and write downs of 15 million pounds to these countries, which are receiving International Monetary Fund (IMF) support, and nine million pounds in provisions against exposure of 358 million pounds to other Asian countries. Schroders also increased its general provisions for bad and doubtful debts to 12.5 million pounds in 1997, from 3.1 million pounds the previous year.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
