Close Brothers cuts 600 jobs but says can weather motor finance storm

Close Brothers Group PLC on Tuesday said it will slash around 20% of its workforce by the end of its next financial year, ‘to structurally lower’ costs, though it added it is well-placed to ‘absorb’ any more motor finance turmoil.

Shares in the merchant bank, which reported results for the half-year to January 31 on Tuesday, declined 5.9% to 336.39 pence in London in morning trade.

It slumped 14% on Monday after a stinging short-seller attack. Viceroy Research said the firm ‘systematically misrepresented’ its exposure to the Financial Conduct Authority’s forthcoming motor finance consumer redress scheme. Close Brothers said Monday it ‘strongly disagrees’ with the report.

Close Brothers employs around 3,000 workers, so the job cuts announced on Tuesday represent 20% of its total headcount.

‘While the impact on affected colleagues is regrettable, these actions are necessary to structurally lower our cost base, while increasing our agility and ability to serve our customers with the speed, flexibility and reliability that they have come to expect,’ Close Brothers said.

‘These actions represent an important step in the evolution of our operating model to support future scalability, improving our ability to deliver operating leverage and achieve further savings in years to come.’

The cuts are expected to be completed by the end of financial 2027.

It now expects to deliver £25 million of annualised savings this financial year, up from its previous £20 million view. It now expects to achieve £60 million in savings by the end of its next financial year, an aim brought forward from financial 2028.

It now sees adjusted operating expenses for the current year of £450 million, the middle of its prior £440 million to £460 million range.

On restructuring costs, it expects to incur between £10 million to £15 million this financial year, upped from its previous view of £5 million to £10 million. For financial 2027, it expects to book restructuring costs between £30 million and £40 million, ‘reflecting the acceleration of our cost reduction activities’.

Close Brothers said its half-year pretax loss narrowed to £65.5 million from £102.2 million a year prior. Operating income, however, fell 6.1% on-year to £333.8 million from £355.4 million.

Net interest income alone was 6.5% lower at £274.4 million from £293.6 million and Close Brothers said its net interest margin fell to 7.1% from 7.3% a year earlier.

Motor finance provisions amounted to £135.0 million during the half year, slimming from £165.0 million a year earlier, meaning it has set aside £300.0 million so far.

Close Brothers did not pay an interim dividend, in line with 12 months prior.

‘Given the continued uncertainty regarding the outcome of the FCA’s review of motor finance commission arrangements and any potential financial impact, the group will not pay an interim dividend on its ordinary shares in respect of the first half of the 2026 financial year. As previously stated, the decision to reinstate dividends will be reviewed by the board once there is further clarity on the financial impact of the FCA review of motor finance commission arrangements,’ it said.

In December, the UK Financial Conduct Authority said it is lifting the pause on the handling of motor finance complaints at the end of May.

‘This timeframe enables us to finalise and begin implementing any compensation scheme, while giving firms a reasonable period to prepare,’ the watchdog said at the time.

Close Brothers said it ‘awaits the final redress scheme rules’, which it expects the FCA to report in late-March.

The firm said its common equity tier 1, a key measure of a bank’s financial strength, improved to 14.3% at the end of January, from 13.8% on July 31.

‘While we continue to await details of the FCA’s proposed redress scheme, we are confident that this leaves us well placed to absorb a range of potential outcomes without impacting our prospects for growth and investment. As clarity emerges, we will continue to optimise funding, capital and liquidity, to further enhance our long-term returns trajectory,’ Close Brothers Chief Executive Mike Morgan said.

‘We recognise the uncertainty in the macroeconomic outlook, both in the UK, reflecting interest rate and inflation dynamics, and globally amid heightened geopolitical tensions. We continue to monitor developments closely, maintaining a disciplined focus on execution, risk management and supporting our people. The group remains well positioned, underpinned by a resilient balance sheet and clear strategic priorities.’

On Tuesday, Viceroy said a review of the FCA’s consultation paper, court transcripts and independent claims suggested that Close Brothers will have to ‘at least’ double its existing provisions. Viceroy said its analysis indicated the exposure Close Brothers has ranges from £572 million to £1.07 billion, well above its current £300.0 million provision.

‘At these levels, the group’s CET1 ratio will approach regulatory breach thresholds,’ the Viceroy report, titled ‘commission impossible,’ said.

Viceroy said Close Brothers hasn’t ‘fully provisioned’ for the redress because ‘further provisions will breach CET1 regulatory capital restrictions and can create an equity wipeout event.’

Any further provisions risk pushing the firm below its minimum capital requirements, triggering: the suspension of additional tier coupons and possible write-down of the assets; credit rating downgrades to junk; and regulatory intervention for restructure, the report added.

Close Brothers hit back after the market close on Monday, saying it ‘strongly disagrees’ with the report.

‘Our provisioning approach in relation to this matter is in accordance with UK-adopted international accounting standards and follows a robust governance process,’ it added.

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