Close Bros Regulatory News (CBG)

18 October 2013

Documents: Annual Report & Accounts 2013, Notice of Annual General Meeting and Form of Proxy

Close Brothers Group plc ("the group" or "Close Brothers") announces that copies of the above documents have been submitted to the UK Listing Authority and will shortly be available for inspection on the National Storage Mechanism at: http://www.morningstar.co.uk/uk/NSM

These documents have been sent to shareholders. The 2013 Annual General Meeting of Close Brothers will be held at 10 Crown Place, London EC2A 4FT on Thursday 21 November 2013 at 11.00 a.m. Full details of the proposed resolutions are set out in the Notice of Annual General Meeting.

The Annual Report for the year ended 31 July 2013 is now available for download from the group's website at:

http://www.closebrothers.com/investor-relations/results-reports-presentations

The Notice of Annual General Meeting and Form of Proxy are also available for download from the group's website at:

http://www.closebrothers.com/investor-relations/shareholder-information/annual-general-meeting

This announcement also contains additional information solely for the purposes of compliance with the DTR 6.3.5 (1) of the Disclosure and Transparency Rules, being a statement of directors' responsibilities, principal risks and uncertainties and related party transactions. This information is extracted, in full unedited text, from the Annual Report 2013. Further information was contained within the preliminary announcement of Close Brothers' final results released to the market on Tuesday 24 September 2013.

Enquiries: Nicholas Jennings, Company Secretary 020 7655 3100

About Close Brothers

Close Brothers makes loans, trades securities and provides financial advice and investment management services. We were established in 1878 and since then have held true to the principles of merchant banking - supporting small businesses and individuals through all conditions. Today we employ over 2,500 people, principally in the UK. We are listed on the London Stock Exchange and a member of the FTSE 250.

Appendix

Statement of directors' responsibilities

The Annual Report contains the following statements regarding responsibility for the financial statements and the management report included in the Annual Report.

Each of the directors confirms that to the best of their knowledge:

• The financial statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and

• The management report, which is incorporated into the Report of the Directors, includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

Principal risks and uncertainties

The Annual Report contains the following statement on principal risks and uncertainties faced by the group.

As described in the Business Review on pages 24 to 27 of the Annual Report, we have listed below the principal risks and uncertainties we face, how we seek to manage and mitigate those risks as well as how we believe they have changed over the last financial year. We have also highlighted where further information can be found in this report relevant to the individual risk or uncertainty. The risks and uncertainties faced are broadly unchanged from previous years.

The disclosures below should not be regarded as a comprehensive list of the risks and uncertainties faced by the group but rather a summary of those which the group currently faces and believes have the potential to have a significant impact on its financial performance and future prospects.

Economic environment

Risk/uncertainty

Adverse economic conditions, particularly in the UK where the majority of the group's business is transacted, could affect the group's performance in multiple ways including:

• Reduced demand for the group's products and services;

• Higher bad debts resulting from customers inability to repay loans and lower asset values for security held against those loans; and

• Reduced investor risk appetite reducing trading income for our Securities division.

Risk mitigation and management

The group's businesses typically trade in specialist areas where they have developed significant market knowledge and expertise. Across the divisions, the group aims to build long-term relationships with its customers adding resilience to trading performance in difficult economic conditions.

Exposure is further mitigated in our Banking business by the conservative loan to value ratios underwritten and the short term, secured nature of our lending.

The group carries out regular stress testing to test that the historic resilience of its businesses can be expected to continue.

Change

The economic environment has not changed materially and each of our divisions has continued to trade profitably. However, the outlook remains uncertain.

Credit losses

Risk/uncertainty

The group faces credit and counterparty risk across its divisions but particularly in relation to its Banking activities. The group advances loans to a range of corporate, SME and individual borrowers. In addition, the group places surplus funding with other financial institutions and has a limited number of derivative contracts to hedge interest rate, foreign exchange and equity exposures in its treasury operations.

Risk mitigation and management

Our lending businesses apply consistent and conservative lending criteria to our loan underwriting. In addition to mitigate credit risk we have:

• Robust processes that facilitate the assessment of the credit quality and covenant of the underlying borrower;

• Lending on a predominantly secured basis with significant emphasis on the quality of the underlying security to minimise any loss should the customer not be able to repay; and

• Timely and rigorous collections and arrears management processes.

The majority of the group's lending is short term and average loan size is small with the result that few individual loans have the capacity to materially impact the group's earnings.

We monitor the credit quality of the counterparties with whom we place deposits, enter into derivative contracts or whose debt securities are held to ensure these remain within approved limits.

Interest rate and foreign currency derivatives are solely held to hedge interest rate and foreign currency exposures. Similarly, equity derivatives are only held to hedge embedded derivatives within our structured deposits funding.

In our Securities businesses exposure is limited as we trade in the cash markets with regulated counterparties on a delivery versus payment basis such that any credit exposure is limited to price movements in the underlying securities. Counterparty exposure and settlement failure monitoring controls are in place.

Change

While impairment losses have fallen during the past year, the economic outlook for our customers remains uncertain. We have maintained our lending criteria and surplus funding continues to be concentrated in Bank of England deposits and UK gilts.

Regulatory change

Risk/uncertainty

The group operates in a highly regulated environment. Regulatory and legislative changes have the potential to significantly impact the group's markets and financial performance.

Risk mitigation and management

The group actively monitors regulatory and legal developments and maintains a constructive and regular dialogue with the relevant regulatory authorities. We continue to believe our straightforward business model, transparent approach and strong liquidity and capital positions mean we are well placed to adapt to regulatory change. During the year we have enhanced our conduct risk management framework as we continue to focus on ensuring we treat clients and business counterparties in a fair and transparent manner.

Change

The UK regulatory regime changed from 1 April 2013 with the result that the group has two new regulators, the Prudential Regulation Authority and the Financial Conduct Authority. The new regulatory relationships combined with the continuing significant regulatory and political focus on the financial services industry increases the risk of material impact from regulatory changes.

Employees

Risk/uncertainty

The skill and experience of our people is central to our distinctive business model and therefore retention of our key employees is fundamental to the group's performance.

Risk mitigation and management

The human resources function reviews our performance management framework and the reward and incentive schemes regularly to ensure we are successful in retaining and attracting the right calibre of employees.

The group has succession plans in place for its key employees and remains committed to developing its employees.

Change

The group's specialist teams remain targets for our competitors. However, the results of the group's employee survey showed that an overwhelming majority of the group's staff value working for the

group.

Technology

Risk/uncertainty

The group's businesses need to ensure they maintain a robust IT infrastructure to support their operations and are able to respond to new technology.

Risk mitigation and management

The group invests in its IT platforms to ensure they remain up to date and fit for purpose for all of the markets in which we operate. Business continuity plans are in place to ensure we are able to respond to a disaster event.

During the year we have continued to update our IT infrastructure including migrating data centres to specialist third party providers and enhancing data security.

Change

We continue to invest in our IT infrastructure to ensure we are well placed to respond to new technology and cyber threats.

Competition

Risk/uncertainty

We operate in competitive markets and increased competition has the potential to impact on our performance.

Government backed funding schemes have the potential to alter the competitive environment for our lending activities.

Risk mitigation and management

Across all our businesses we aim to build long-term relationships and generate repeat business by operating in a fair and transparent manner and offering a differentiated proposition across each of our businesses. This is done by, inter alia:

• Speed and flexibility of service;

• Local presence with experienced staff;

• Product choice; and

• Pricing.

Change

We have begun to see increasing competition in parts of our Banking business, while in Securities and Asset Management the markets remain highly competitive.

Funding

Risk/uncertainty

The group requires access to funding, principally to provide liquidity and support lending in its Banking businesses.

Risk mitigation and management

The group's funding and liquidity are actively managed within clearly defined risk appetites.

During the year we have accessed:

• Retail funding markets;

• Corporate deposits;

• Interbank facilities; and

• Securitised funding.

Total funding is £6.3 billion or 135% of the loan book at 31 July 2013 and is diversified. The surplus provides adequate liquidity, particularly given the duration of our lending. Liquidity in the Banking division is assessed on a daily basis to ensure it remains above both internal and regulatory requirements.

Change

The group has continued to access a wide range of funding markets during the year. The outlook for further funding access remains positive.

Execution of strategy

Risk/uncertainty

We have experienced significant growth in our banking businesses since 2009 in line with our strategic plans and have made a significant investment, including some acquisitions, in our Asset Management business, as well as setting up Winterflood Business Services within the Securities

division.

Failure to invest in our businesses to support growth, to respond to changes in our markets or to execute plans to integrate acquisitions while retaining existing and attracting new customers in our Asset Management business, has the potential to affect future earnings and delivery of our strategic objectives.

Risk mitigation and management

We devote significant time and resources to the development and execution of our strategic plans, including a formal annual review of plans of all of the divisions with the group board.

Our plans are to predominately grow organically with significant due diligence and performance hurdles set before acquisitions are considered.

We constantly monitor performance against our plans through key performance and risk indicators and have sound corporate governance practices to ensure strategic decision making is based on

carefully considered principles.

Change

The group has made further progress in executing its organic strategic plans. In particular the Asset Management restructuring has been completed and the division has returned to profitability.

Exposure to markets

Risk/uncertainty

The group is exposed to market movements deriving from trading in equity and fixed income securities.

Interest income is a substantial proportion of the group's revenues. Movements in interest rates have the potential to affect the group's earnings.

While the majority of the group's activities are located in the UK and transacted in sterling, the group is subject to foreign exchange exposure. The group has currency assets and liabilities, principally lending, borrowings and customer deposits, within the Banking division. In addition the group has a small number of overseas subsidiaries and currency denominated investments.

Risk mitigation and management

Our Securities businesses primarily act as market-makers, providing liquidity in short dated exchange traded products. Position limits are set annually for each product, sector and individual stock with real time monitoring and oversight by senior management.

The group's policy is to match fixed and variable interest rate liabilities and assets utilising interest rate swaps where necessary. Returns from the group's capital and reserves are necessarily subject to interest rate fluctuations and as a matter of policy are not hedged.

The foreign exchange exposures arising from the Banking division's assets and liabilities are managed by matching assets and liabilities by currency and the limited use of foreign currency swaps. Exposures are monitored daily against centrally authorised limits. The group does not take speculative proprietary positions in foreign currency.

The group does not hedge its currency exposure to its overseas subsidiaries and currency investments since it is relatively modest.

Change

The group's approach is consistent with prior years and the risk is considered unchanged.

Related party transactions

The Annual Report discloses the following related party transactions with key management and an associate.

Transactions with key management

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of an entity; the group's key management are the members of the group's Executive Committee, which includes all executive directors, together with its non-executive directors.

The table below details, on an aggregated basis, key management personnel emoluments:

Gains upon exercise of options by key management personnel, expensed to the income statement in previous years, totalled £3.2 million (2012: £2.7 million).

Key management have banking relationships with group entities which are entered into in the normal course of business. Amounts included in deposits by customers at 31 July 2013 attributable, in aggregate, to key management were £1.2 million (2012: £1.3 million).

Transactions with associate

The group had no banking relationship with an associate at 31 July 2013. At 31 July 2012 Mako had a banking relationship with a group entity which was entered into in the normal course of business. Amounts included in deposits by customers relating to this relationship at 31 July 2012 were £9.2 million.