By Vernon Wessels
March 20 (Bloomberg) -- Investec, a South African private and investment bank, said fiscal second-half operating profit will exceed earnings reported in the first six months, helped by lower writedowns at its British unit.
The company may write down 10 million pounds ($19.8 million) of U.S. structured credit investments in the six months through March related to the subprime-mortgage crisis, Johannesburg-based Investec said in a statement today. That compares with writedowns of 36 million pounds in the first-half.
``We took the brunt of the write-offs in the first-half,'' Chief Executive Officer Stephen Koseff said on a conference call. Of the 83 million pounds in its U.S. investments at the end of February, 27 million pounds is dependant on the performance of the subprime market, compared with 33 million pounds at the end of the first half in September, he added.
A strong performance by Investec's main South African business, where it owns the second-biggest private money manager and fifth-largest bank, will also help second-half profit. South Africa, which accounts for about 60 percent of its earnings, will be helped by increased equity trading and investment banking deals, Koseff said. Operating profit at the company's Australian unit will slow from the 61 percent growth achieved in the first six months, he added.
Investec rose 0.8 percent to 322 pence in London trading, paring an earlier decline of as much as 2.7 percent. The stock has dropped 50 percent in the past year, giving the company a market value of 2.1 billion pounds.
U.K. Slowdown
The lender bought Kensington Group Plc in August for 283 million pounds to boost its mortgage-backed securities business, just as the market ground to a halt amid record U.S. mortgage defaults. Kensington, which is being integrated into Investec's capital markets business, has since stopped providing mortgages to people with poor credit histories, tightened lending criteria and raised new business.
Investec expects to have impairments of between 50 million pounds and 60 million pounds of the 120 million pounds of goodwill associated with the Kensington purchase, Koseff said. A one-time gain of 85 million pounds for the sale of its stake in Growthpoint Properties Ltd. will help compensate for it, he added.
Investec said it won't meet its full-year target of adjusted earnings-per-share growth of U.K. inflation plus 10 percent because a slowdown has lowered property values and stalled lending.
``We expect to comfortably meet all our other targets,'' Koseff said. Investec also expects a return on equity, a measure of profitability, of 20 percent and a cost-to-income ratio of below 65 percent.
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