Hambros to slash dividend

HAMBROS, the blue-blooded merchant banking group, will slash or pass its dividend this week when it announces worse- than-expected annual results, according to inquiries by the Independent on Sunday.

The poor results could make the bank vulnerable to a takeover bid, another candidate in a growing line of British banks to lose their independence. In the past three months, Barings and SG Warburg have both succumbed to foreign buyers.

News of the dividend cut will come as a shock to the stock market, where Hambros shares rose 11p to 215p on Friday, in sympathy with fellow merchant bank Kleinwort Benson Group, as fresh rumours gained ground that Germany's Dresdner Bank was about to mount a bid for Kleinwort.

Stockbrokers slashed their forecasts of Hambros' profits from pounds 90m to pounds 50m in the wake of a slump at the half-way stage. However, the group has since paid pounds 28m in an out-of-court settlement to Norway's state-owned Guarantee Institute. This related to Hambros' involvement 30 years ago with Hilmar Reksten, the Norwegian shipping magnate who died in 1980. The Hambro family originally came from Norway, and the bank is one of the world's leading specialist lenders to the shipping industry.

Although it dates so far back, this payment may have to be treated as an exceptional charge against the profits for the year to March, possibly taking the final figure as low as pounds 22m.

Hambros' interim dividend of 4.5p was barely covered by half-year profits. And if the Reksten payment is taken into account, the year's earnings per share could be little more than the 4.8p achieved in the first half.

That would leave nowhere near enough to match last year's total dividend of 15p. The group could top up the payment from reserves, but its latest balance sheet - 31 March last year - showed shareholders' funds of only pounds 510m against total assets of pounds 7.7bn, so it has little room for manoeuvre in that respect.

On Friday, Sir Adam Ridley, the former special adviser to the Chancellor of the Exchequer who is an executive director of Hambros, was unwilling to comment on the dividend question.

It is understood that Hambros, in common with many other companies, does not formally decide the size of the dividend until immediately before the profits are announced. But sources within Hambros claimed that the decision had effectively been made already by the chairman, Lord Hambro, and his two deputies, Sir Chips Keswick and Christopher Sporborg.

Apart from the Reksten payment, Hambros' trading has been badly hit by the slump in the securities and housing markets. Lord Hambro admitted last November that the securities clearing subsidiary had traded at a loss in the first half. And Hambro Countrywide, the quoted estate agency chain in which Hambros has a 51 per cent stake, moved from a profit of pounds 1.3m to a pounds 750,000 loss during the same period.

Lord Hambro said: "Any upturn in the housing market will have a greater impact on overall group profitability, now we have expanded Hambro Countrywide's network."

In October, the firm bought Nationwide Building Society's estate agencies. However, the housing market has since slowed down even further, with the level of transactions reaching new lows. Estate agencies are more sensitive to the level of turnover than they are to price levels.

Although Hambros said it had "no present plans" to reduce staff, it may not for much longer be able to afford rises in administrative expenses such as the pounds 15m increase to pounds 168m in the six months to last September.

Sir Adam Ridley said at the time: "Bond markets continue to be rather gloomy and uncertain, with low volumes and high volatility, making it very, very difficult to forecast."