Arbuthnot: Historic bank leans on wealth unit as rate cut hits lending income

Arbuthnot Banking Group reported growth in its wealth management arm as the historic lender looks to weather a fall in interest rates.

The 191-year-old private and commercial bank said its funds under management and administration hit £2bn for the first time as of September, growing 18 per cent over the first nine months of 2024.

Arbuthnot reported net inflows of £43m for the third quarter, adding that the number of new wealth management clients joining the bank was nearly 50 per cent higher than the prior year.

Still, the London-listed bank said gross outflows of £38m were slightly higher than expected, despite being “significantly lower” than last year as a peak in interest rates prompted debt reduction plans funded by the sale of investments.

Arbuthnot said its direct gilt service, launched in February, had proven “significantly more popular than initially expected”. The product attracted almost £100m of assets.

The wealth unit’s growth signals a diversification away from interest-rate sensitive products, which are set to generate less income after the Bank of England lowered borrowing costs in August from a post-financial crisis high.

Markets expect policymakers to make at least one further cut this year. Arbuthnot said the BoE had “signalled the next phase of its interest rate cycle… and as a result interest income started to be adversely affected”.

Still, Arbuthnot said the majority of its new lending was fixed rate, therefore providing mitigation against future easing of monetary policy.

The bank’s loan book stood at £2.5bn at the end of September, up from £2.3bn a year earlier.

Meanwhile, its deposits rose to £3.8bn from £3.5bn. Arbuthnot said the cost of its deposits had risen to 3.12 per cent in September after repricing and customers trying to fix their returns ahead of future falls in the BoE’s base rate.

The bank reported “significant deposit outflows” from its banking arm into investment product provided by its wealth management unit.

Arbuthnot’s half-year results, published in July, showed its underlying pretax profit fell to £20.8m from £29.3m year on year.

It largely blamed the fall on the 12-month lag between interest rate hikes from the BoE and how the bank’s existing fixed-rate deposits are priced.

This summer, Arbuthnot relocated its City offices to 20 Finsbury Circus from 7 Wilson Street. The new location boasts 45 per cent more office space.