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Another perspective on private banking size and profitability: Arbuthnot Latham and Weatherbys Bank
11/07/2017 , Ian Orton

It may take some time for aspirant UK challenger private banks to achieve profitability especially if, as is the case with Edinburgh and London-based Hampden & Co., they focusing entirely on classic banking-related activities.

But this doesn’t mean that relatively small banks can't generate profits as the examples of London-based Arbuthnot Latham and Wellingborough, Northamptonshire-based Weatherbys Bank illustrate.

Both banks are small institutions. Arbuthnot Latham reported operating income of £41.78 million for the year ending 31 December 2016. Weatherbys recorded £23.02 million.

This makes them relative giants compared to Hampden & Co, which posted £1.64 million of income in its first full year of operations. But both institutions are still very small compared to C. Hoare & Co, which will almost certainly record over £100 million of revenues when it reports its 2016 results later in 2016.

Nonetheless Arbuthnot Latham and Weatherbys both posted pre-tax profits.

Arbuthnot Latham generated pre-tax profits £7.54 million for 2016, a £3.07 million or 68.45 percent increase on the £4.48 million recorded in the previous year according to its latest report and accounts and increased its income or pre-tax margin from 12.77 percent to 18.05 percent in the process.

Weatherbys Bank posted pre-tax profits of £6.78 million, a  £0.75 million or 9.90 percent decrease on the previous year. Nonetheless at 29.47 percent it still generated what would be considered to a very good income or pre-tax profit margin.     

Arbuthnot Latham and Weatherby’s do not rely exclusively on banking, or interest earning activities, however.

Net interest income accounted for 73.66 percent of its total operating income of £41.78 million at Arbuthnot Latham. Banking commissions, investment management fees and commissions and wealth planning fees and commissions accounted for the remaining £11.43 million or 26.34 percent.

At Weatherbys net interest income of £17.24 million accounted for 74.87 percent of operating income of £23.02 million with fees and commissions derived from joint-ventures and other elements of the Weatherbys Group accounting for the remaining £5.78 million, or 25.13 percent.

Not surprisingly both Arbuthnot Latham and Weatherbys have much bigger balance sheets than Hampden & Co. But the differential as far as this metric is concerned is much smaller.

Arbuthnot Latham had assets of £1,199 million on its balance sheet of which cash and loans (loans and advances to banks and customers) accounted for £1,003 million. Weatherbys had total assets of £634.56 million of which cash and loans accounted for £543.17 million.

By way of comparison Hampden & Co. had assets of £180.57 million of which cash and loans accounted for £176.59 million or 97.80 percent of the total.

Furthermore cash, cash equivalents and balances with the central bank, or very low interesti earning assets, accounted for £102.00 million or 56.34 percent of the total.

This is much higher than the for Arbuthnot Latham where cash and balances with central banks accounted for just £873,000 and almost certainly higher than at Weatherbys, which doesn’t break this figure out on its balance sheet.

The reality is that Hampden and Co. does have considerably scope for increasing revenue by utilising its balance sheet better without having to diversify out of banking-related activities.

But this will depend on just how conservatively it wishes to manage its balance sheet and its ability to source new lending opportunities.        

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