Close Brothers rides volatility wave as virus fears, oil price war play out

* Winterflood volumes hit record on Monday

* Market volatility driven by virus fears, oil price crash

* Half-year pretax profit at the unit grows 14%

March 10 (Reuters) – UK lender Close Brothers said on Tuesday its market maker business has seen record volumes in the last few months as factors including the coronavirus outbreak and the oil price crash have translated to massive participation by traders.

Greater market volatility tends to bolster profits at market maker businesses such as the Winterflood unit of Close Brothers, as investors turn portfolios around more frequently.

Close Brothers’ comments followed a 9% drop in adjusted operating profit for the merchant bank to 125.7 million pounds ($163.9 million) for the six months ended Jan. 31, as business lending remained weak due to Brexit uncertainties.

However, earnings at Winterflood, Europe’s largest market maker, jumped 14% to 10.6 million pounds as investor confidence improved after a decisive result from the December election in the UK.

The current year by far has been the most volatile for markets since the 2008 financial crisis, with crude prices marking their worst day on Monday since the 1991 Gulf War.

The selloff was triggered by fears of an over-supply in the market after biggest producers Saudi Arabia and Russia began a price war, aggravating market conditions that were already bogged down by coronavirus fears.

Preben Prebensen, chief executive of Close Brothers, told Reuters that Boris Johnson securing a parliamentary majority lifted investor confidence as it meant quicker Brexit-related decisions.

“If you take that forward to the next big event which was really the coronavirus and the implication of that, that has caused a lot of volatility and a lot of volume increase in the market,” Prebensen said.

With that amount of market volatility, there is increased participation by both retail investors as well as institutions.

“In the last week in February, the volumes at Winterflood were running at twice the six-month average and then on the 28th of February, Winterflood had its highest-ever trading volume day and then yesterday that record was beaten again,” Prebensen said on Tuesday.

Market volatility is in full swing this year after a relatively quiet 2019, when traders held back amid uncertainties due to the U.S.-China trade war and Brexit.

“The toughest of all times for Winterflood is when no one is doing anything. Much better times for them are when retail and institutions are very heavy participants in the equity markets and that has been true for a while now,” Prebensen said. ($1 = 0.77 pounds) (Reporting by Muvija M in Bengaluru; Editing by Maju Samuel)

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