Split-caps and Prebon hit Collins

THE cost of taking over rival bond and derivatives broker Prebon and a £10m contribution to the compensation fund in the City's split-capital trusts scandal saw profits at Collins Stewart Tullett plunge by more than two-thirds last year.

The firm, headed by controversial financier Terry Smith, also warned that it faces a challenging year against a background of a weak corporate bonds market and the decline in the dollar on top of the struggle to integrate Prebon with the Tullett part of the business - the two having previously been fierce rivals.

The £132m takeover of Prebon means the firm is now the second-largest so-called inter-dealer broker with that part of the business now accounting for four-fifths of the enlarged group and dwarfing the traditional stockbroking business from where Collins Stewart started and Smith made his name.

In 2004 the group made underlying operating profits of £90m, marginally ahead of last year on a like-for-like basis.

However, at the bottom line, with £49m of the expected £80m costs of integrating Prebon and shedding excess staff taken in the year plus the split-trusts settlement costs, pre-tax profits came in at £21m against £66m last time.

The total dividend for the year is 8.5p, up 10%.

The firm is still embroiled in legal action against the Financial Times over its coverage of since-withdrawn allegations of insider dealing at Collins Stewart made by James Middleweek, a former analyst at the firm. The case is to be heard later this year.