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F&C looks to wipe £3m more off costs; Warren to replace Porter

F&C looks to wipe £3m more off costs; Warren to replace Porter

F&C Asset Management is looking to wipe another £3 million of costs and has confirmed Michael Warren will take control of its consumer arm from Charlie Porter (pictured).

The news, which was accompanied with a first half trading update from the group, lifts its overall cost savings target to £48.8 million as chairman Edward Bramson continues his strategic review of the business.

In the six months to the end June, F&C saw assets under management fall from £100.1 billion at the end of December to £98.2 billion. Net revenue fell from £137 million to £120.3 million year-on-year, contributing to a fall pretax profit from £32.9 million in June 2011 to £32.1 million. The group maintained the interim dividend at 1p.

The market saw the update as an opportunity to take some profits from the group. At 10am shares in F&C had lost 1.6p, or 1.82%, to stand at 86.4p.

On a brighter note the group said its institutional, or 'Strategic Partners' net pipeline increased from zero at the end of 2011 to £1.6 billion. This helps offset Friends Life's intention to withdraw around £2.8 billion in assets under management in the second half, which equates to around revenues of around £2.3 million per annum. This was in line with F&C's previous guidance that these assets were at risk.  

The institutional pipeline boost was offset by ‘significant’ withdrawal from its wholesale business, where products for which are marketed primarily to private banks and wealth managers.

The group also confirmed that Warren would take control of F&C's consumer business. He will replace Charlie Porter who Wealth Manager revealed would be standing down yesterday. Porter will remain with the group as a non-executive director.  

Commenting on the numbers Bramson said: ‘2012 is a transitional year, during which F&C is implementing new business strategies, re-sizing its expense base, and beginning to improve its capital position. In the first half of 2012 we have made major progress on all of these fronts. I look forward to reporting further progress when our year-end results are announced.’

Analyst reaction

Macquarie gave F&C credit for restructuring its business to counter the risk to Strategic Partner assets.  

'The group appears to be focusing on not just delivering but increasing the impact of this restructuring on costs with a consequent acceleration on balance sheet improvement. The additional cost savings therefore are encouraging,' Macquarie said in a note on the group.

'The outlook for third party institutional mandates is strong and the performance in fixed income which is robust comes at an important time too. We think these internal and strategic actions offer a significant enough balance to the risks which the group faces from the potential impact on flows from further sovereign credit risk in Europe.'

Credit Suisse's Gurjit Kambo was a little more guarded in his response to the numbers, even though F&C is 'not expensive relative to the sector'.

Kambo said: 'We [Credit Suisse] believe that F&C fund flow momentum will be weaker relative to the sector and view the investment case as more of a special situations thesis given execution on the strategic plan will be key to further share price appreciation, which in the current environment is not without its challenges.'  

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