(Alliance News) - Close Brothers Group PLC on Tuesday announced plans to bolster its financial position as it grapples with the uncertainties of the probe into commission payments in the UK motor finance industry.
The merchant bank said, combined with the decision to not pay any dividend payments in the current financial year, its proposals could strengthen the group's available CET1 capital by around GBP400 million by the end of 2025.
Shares in Close Brothers rose 8.8% to 363.60 pence in London on Tuesday morning.
The plans include a combination of significant risk transfer of assets and selective loan book growth to optimise risk weighted assets, supported by additional cost cutting, the company said.
Close Brothers expressed confidence that these "decisive actions" will position the group well to withstand a range of scenarios and potential outcomes.
Close Brothers said there was "significant uncertainty" in relation to the UK Financial Conduct Authority's review but did not make any provisions in its first half results.
In January, the UK financial services watchdog explained it is probing whether compensation could be due for people who were potentially overcharged for car loans.
If it finds misconduct, those affected will be compensated.
In the wake of this, in February, Close Brothers said it would not pay a dividend for the current financial year, which runs to July 31, and the reinstatement of payouts for financial 2025 will be reviewed once the FCA has concluded its probe.
Close Brothers said at this early stage, the timing, scope and quantum of any potential financial impact on the group cannot be reliably estimated.
In the six months to January 31, Close Brothers said statutory operating pretax profit multiplied to GBP93.8 million from GBP11.7 million the year before.
Last year's figure included impairment charges of GBP114.6 million related to Novitas.
Novitas was acquired by Close Brothers for around GBP31 million in 2017. It is a provider of loans for legal proceedings.
In 2021, Close Brothers decided to permanently cease the approval of lending to new customers across all the products offered by Novitas and withdraw from the legal services financing market.
Excluding Novitas, adjusted operating profit reduced to GBP94.2 million from GBP117.5 million, reflecting cost growth, a reduction in Winterflood income and higher group net expenses.
Basic earnings per share totalled 46.0 pence, rising from 5.6p a year ago, with the return on average tangible equity climbing to 10.1% from 1.3%.
The CET1 ratio declined to 13.0% from 13.3%.
In its banking business, Close Brothers reported loan book growth of 4% to GBP9.9 billion, up from GBP9.5 billion, driven by strong growth in property and continued good demand in asset finance and the UK motor finance business, partly offset by the normal seasonal impact seen in the premium and invoice finance businesses.
By Jeremy Cutler, Alliance News reporter
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Close Bros (CBG)