Schroders suffers a 27% plunge in first-half profits

FIRST-HALF pre-tax profits at investment bank Schroders fell by 27 per cent, hit by write-downs and a weak performance from its private equity and asset management business, it said yesterday.

The London-headquartered company also warned that demand from retail investors was set to weaken.

The bank, which announced write-downs in April, said yesterday that assets under management fell to 130.2 billion from 139.1bn at the end of last year. "We expect retail investor demand for mutual funds to be increasingly affected by the volatility of financial markets," it said. "This will have a negative impact on revenues in our retail business."

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Pre-tax profit came in at 135.7 million down from 185.6m a year ago. The bank, which traces its roots back more than 200 years, saw a total of 1.1bn of net outflows, largely in its institutional business, while retail funds saw 200m of outflows.

In April, Schroders said it had taken an unrealised mark-to-market write-down of 25.8m on US mortgage and asset-backed securities in the first quarter. It also announced a 7.7m write-down on seed capital invested in new funds.

Profit from private equity dropped to 7.4m from 36.2m a year ago due to unfavourable market conditions. Chief executive Michael Dobson said yesterday that current conditions would continue "for the balance of the year and certainly into the early part of 2009".

He added: "I think volatility will continue for a while. Investors want to see a bit more visibility on the economy before they commit money."

However, profit from the firm's asset management business rose to 136.7m from 123.2m, helped by a rise in gross profit margin to 65 basis points from 57 basis points as it sold more higher margin products.

Citi analyst Haley Tam, who rates the shares a sell, said in a note that there was a high risk of further outflows from the group's AS Agriculture fund and Commodity fund, which are both down 14 per cent since 30 June.

Total assets under management fell to 130.2bn from 139.1bn at the end of last year due to market falls and 1.1bn of net outflows. The shares closed 6.36 per cent higher at 1,070p.