STM Group results point to difficult conditions for trust companies

The performance of the Jersey office of publicly listed financial services company STM Group Plc was the only ray of sunshine in a poor set of financial results released by the company today.


It is relatively rare to see publicly recorded accounts for trust companies, as the majority are in private ownership, and so it is interesting to see how STM has weathered the financial crisis.  And the conclusion seems to be that it has found the going tough. Group revenues declined to £9.8 million from the 2010 figure of £10.5 million, at a time when costs were rising.  As a consequence, a profit of £1.4 million in 2010 was translated into a loss of £300,000 in 2011, and EBITDA declined from £1.7 million to £1 million.


According to the financial statements, the Gibraltar office has been particularly badly impacted in 2011 by the Eurozone crisis and redundancies have been implemented there to reduce the overheads, but the Jersey office, and particularly the portfolio of business acquired from Zenith, has performed well.


STM was formed in 1989 with the aim of becoming a leading multi-jurisdictional corporate and trustee service provider, and has for some time been pursuing ambitious plans to expand through acquisition at a time when there is a clear opportunity for consolidation in the fragmented trust and company market. 


The company has been an active buyer – with acquisitions including Fidecs Group (a Gibraltar head-quartered business), the Atlas Group of Companies, Parliament Corporate Services Limited, Compagnie Fiduciaire Trustees, St George Financial Services Limited and the Zenith Group of companies.  Nevertheless, the latest set of figures would seem to suggest that it is not yet starting to reap the rewards of business synergies and increase in scale brought about by these acquisitions.


The financial crisis, together with increasing regulatory and compliance costs, is seeing some smaller trust companies which have for many years been reliable cash-cows, slipping in to unprofitability, whilst some of their larger rivals thrive despite the economic turmoil.  Although STM has set out with the express aim of being a consolidator, it still a long way behind some of the larger international trust companies in size. The strategic dilemma for the company will presumably be whether to forge ahead with its acquisition strategy despite the drop in profits, or whether to pause for a while to focus on efficiency.