In our view, the key takeaway from the recent 3Q trading statement is how Arbuthnot Banking Group plc (LON:ARBB) is progressing strategically towards its “Future State 2” plan. In particular, we note i) specialist SME finance divisions generating the ambitious balance sheet growth in the plan, ii) optimising the core relationship banking franchise, which, in this period, saw 7% deposit growth ‒ given the level of base rates, this is a profitable product for a relationship bank, and iii) continued investment, which, at times, requires a step change in cost rather than a gentle evolution. To meet expected multi-year demand, ABG is increasing its central London HQ office space by 45% at an annual increase in cost of ca.£5m (with further dual running costs until October 2024 as it is refitted).
- Credit: “The book continues to perform robustly despite the increased credit risk inherent in the current environment. This was a result of a conservative credit appetite, which was tightened over a year ago”. At the interims, we detected the early signs of a gentle deterioration, and our loss expectations are unchanged.