Arbuthnot has plenty of firepower

Private bank Arbuthnot Latham looked in fine fettle even before the sale of the majority of its parent's stake in Secure Trust in June. Management has been ramping up its investment in the business during the past 18 months. Within that time the private bank has opened up an office in Manchester and expanded its premises in London and Exeter. Its Dubai office turned a small profit last year, ahead of plan and just two years after opening. This has helped propel Arbuthnot Latham's solid loan book growth. During the 18 months to the end of June, customer loans have grown by almost a third to £657m. And in the first half of 2016 pre-tax profits rose 22 per cent to £4.5m, even though expansion meant some one-off spending upfront.

Arbuthnot has a balance sheet sturdy enough to take its private and commercial banking businesses to the next level - research house Hardman & Co believes it has about £150m of surplus capital. In relation to its size, that's almost certainly more than any other bank in the UK. This arises from, first, the sale of Everyday Loans to sub-prime lender Non-Standard Finance (NSF), which generated a book profit of £117m; then, in May, it sold about two-thirds of its stake in Secure Trust, cutting its holding to 18.9 per cent.

Management is concentrating on growing its commercial banking operations in the near term. This has meant hiring more commercial bankers in London, with plans to set up teams in the north and the south west, too. Starting with its clients within the media industry, commercial lending has extended to real estate and professional services sectors. This should boost Arbuthnot's asset base and propel earnings even further. Its wealth management business is also growing nicely - assets under management rose 14 per cent to £797m in the year to end-June. As Arbuthnot already has the customer base, there should be cross-selling opportunities to increase fee income.

The timing and pace of the bank's profits growth will ultimately depend on when management can deploy its extra capital. Analysts at broker Numis estimate that with a 40.5 per cent core tier-one ratio, there is plenty of room for acquisitions. True, that brings risks as well as potential. Even the best-led businesses make mistakes when they have oodles of cash to spend, though Arbuthnot's chief executive, Sir Henry Angest, has been running Secure Trust since the early 1990s.