Close Brothers increases cost cuts to offset motor finance provision

(Alliance News) - Close Brothers Group PLC on Thursday said it delivered a "solid performance" in the third quarter and expects to exceed its annual savings target after increasing its motor finance provision.

The London-based merchant bank said the lending division delivered "resilient" underlying probability in the third quarter to the end of April.

The loan book increased 1.1% to GBP9.3 billion in the quarter from GBP9.2 billion at the end of January, amid continued growth in Motor Finance and the reversal of seasonality in Invoice Finance.

On an underlying basis, the loan book increased by 2%.

The annualised year-to-date net interest margin was 7.0%, compared to 7.1% in the first half. Close Brothers continues to expect the net interest margin to be "slightly lower" than 7%, reflecting loan book mix impacts.

The company said it is making "good progress" in reducing costs, including simplifying business and management structures, and further outsourcing and offshoring.

It now expects to exceed its GBP25 million annualised savings target for financial 2026. The firm expects adjusted operating expenses to be below its previous guidance of around GBP450 million.

Close Brothers now forecasts the central functions operating loss at the lower end of the GBP45 million to GBP50 million guidance range.

After the publication of the UK Financial Conduct Authority's motor finance consumer redress scheme in March, Close Brothers increased its provision to GBP320 million.

As a result, the company has an additional income statement charge of GBP30 million in the third quarter.

Close Brothers said: "While there are elements of the scheme that we disagree with, we continue to believe that the existing scheme offers a quick, clear and certain route to resolving this matter for all relevant parties.

"However, the ultimate cost to the group remains subject to the outcome of the legal challenges to the scheme and any further legal, regulatory or industry developments including court claims and complaints from consumers."

Looking ahead, Close Brothers said it has delivered a "solid performance" in the quarter and remains on track to deliver financial 2026 results in line with guidance, subject to current macroeconomic developments.

"We have delivered a solid performance in the third quarter and continue to execute our strategy through this important transitional year," said Chief Executive Mike Morgan.

"We are progressing well with the delivery of our strategic objectives and targets. Our capital position remains strong after absorbing the additional provision for motor finance commissions, enabling investment in future growth to further support the UK economy."

Shares in Close Brothers were down 0.8% at 456.20 pence on Thursday morning in London.

By Michael Hennessey, Alliance News reporter

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