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Wealth Manager: How Arbuthnot went from banking's best kept secret to sector darling

Wealth Manager: How Arbuthnot went from banking's best kept secret to sector darling

You know the modern archetype of a banker: someone exchanging all-lads-together banter with colleagues, while openly and fraudulently distorting financial markets? Plundering public coffers when it’s a matter of their own survival, then flicking a middle finger at public opinion?

Well, James Fleming, chief executive at Arbuthnot Latham, is the exact inverse of that archetype.

Even allowing for the fact he hails from a considerably more genteel branch of the industry than the rough and ready, testosterone-driven world of investment banking (having come up through SG Hambros before more recently working as managing director of the international team at Coutts), he is by a wide margin more self-effacing, engaging and personable than is usual at his level of seniority.

Possibly self-effacing to a fault – part of the pre-interview negotiation is a stipulation that any profile focuses on the business, which he joined last year, over his personality.

But that in itself could be construed as an exercise in brand extension: Arbuthnot Latham’s parent company, the Arbuthnot Group, has become a UK bank that it is okay to love.

‘We don’t build investment products, which is a strong selling point for clients,’ says Fleming. ‘We are still deposit-financed and we have a [lending] limit of 70% of our deposit base. The 30% not lent out is deposited with the Bank of England. We are not dependent on the wholesale [funding] markets in any way.’

Popular with clients, and also with equity markets. Since the beginning of 2012, shares in Arbuthnot Banking Group have climbed 155% from 337p to 860p, compared with a 51% rise by the FTSE UK Financials index over the same period.

 

That was boosted by the listing of 25% of the company’s retail-focused Secure Trust Bank on AIM, which is arguably where the greater growth potential is located, and which has seen its shares rise 128% to £17.25 since listing in November 2011.

Both Fleming and his press team go to some pains to stress the operational separation of the two divisions, with the former describing them as ‘almost at opposite ends of the banking spectrum’, but well-regarded UK equity managers have also been generous in their praise of the group as a whole.

‘Arbuthnot is a secure and sensible bank and anyone who knew anything about it realised its valuation was ridiculous,’ Citywire A-rated John McClure, whose Unicorn Income fund is the best performing UK Equity Income fund over three years, told Wealth Manager last year.

‘It has always been profitable and never done anything daft like the mainstream banks. It is solvent and has played the game properly, while other banks went on a merry acquisition spree. When the boom was happening, it kept its powder dry. It’s a firm that has been completely misunderstood,’ McClure adds.

Arbuthnot Latham reported a profit of £1.43 million in the first half of 2012 versus £850,000 in the same period of 2010, and £191,000 in 2009. Working from a low base, managing just £240 million in assets and with a total balance sheet valuation of £1.4 billion, Fleming says the group still has plenty of room to grow organically.  

‘We grew [investment assets] 20% on the previous year and 40% in the year before, but I am reluctant to say that, because you will say that our growth rate has halved,’ he laughs.

 

‘We are coming from a small base, but we are growing organically at a steady pace. It’s been an interesting time, and, I hasten to add, an enjoyable time.

‘As far as we are concerned the business [remains] very much UK-centric. There is potential to build on our experience and capability. One of the things that we are doing is a relationship with a Swiss private bank for clients who want jurisdiction of their assets there, and we are open to other strategic relationships.’

The company has hired a string of staff to target growth among overseas and UK resident non-domiciled clients. These include Linda Amili Clack, who joined last September from Mubarakia Limited Family Office, as international banking director with particular focus on the Middle East; Liz Bottomley, formerly senior manager and client partner in Coutts’ international banking division; Ross Mitchell, also formerly of Coutts; and Robert Webster from Barclays.

Closer to home, integrated financial planning has long been a core part of the company’s proposition and remains a potentially significant source of future growth, both organic and possibly acquisition-led.

‘We are RDR-compliant and independent, and I believe we are still the only private bank to hold chartered status – the vast majority of staff are chartered financial planners. So there has been no real structural change for us,’ says Fleming.

‘Clearly, there has been a lot of change in the advisory market, and we have looked at one or two [acquisition] opportunities and moved on. We are considering one or two others and I could see how it would make sense for us, where we would be able to keep a loyal client following.

‘[But] it would be on a very selective basis. We have integration risk and cultural risk: there are a lot of factors to consider when you buy something into a small business.

 

‘Integrating people is a lot easier than swallowing a whole company. Price is also a factor. Where we can acquire good quality individuals, we will. It is something that we have done, but it is very opportunistic, and you can never factor in when those opportunities are going to come along. People do not just wake up and say, on a given Monday, “I am available”.’

Among the company’s unique selling points are its vintage car division – the room where the interview takes place is littered with polished high-performance sports car components. The company maintains its representation in the sector through sponsorship of the Historic Grand Prix Cars Association and a dedicated team of sector specialist bankers.

At least partly, the private bank is intending to grow by becoming more ‘bank-y’. The company has expanded its boutique residential lending services to exploit the retreat of its larger rivals, with interest revenue rising to £6.94 million in the first half of 2012, versus £6.72 million in the same period of 2011 and £5.63 million in 2010. 

‘The business has maintained its ability to take advantage of good quality lending opportunities, which has been facilitated by the strong capital base and by utilising some of the excess liquidity held at the year end,’ the group said at the half-year results in July 2012.

‘[Profit] is quite evenly split on the banking/lending and wealth management sides, and they are obviously very different streams of revenue so we do have diversification benefits,’ says Fleming. 

Alongside the current execution-only currency dealing service, the business is launching a commodity equivalent, stressing it will not be trading on its own behalf.

‘We already do foreign exchange dealing for clients, and we have seen more and more clients coming to us to ask about commodity trading,’ Fleming adds. ‘It is a pure, non-advised execution-only service for clients, and we will not be trading our own book.’ 

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Profile: The opportunity set that attracted Brett Williams to wealth management

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