Close Brothers on track despite extra motor finance redress provision

(Sharecast News) - Close Brothers said on Thursday that it delivered a solid third-quarter performance, with resilient lending profitability and a strong capital position despite taking an additional provision for motor finance commissions.

The FTSE 250 specialist banking group said its loan book rose 1% in the quarter ended 30 April to £9.3bn, from £9.2bn at the end of January.

On an underlying basis, excluding the planned reduction in Premium Finance personal lines and the run-off of the legacy Republic of Ireland Motor Finance loan book, the loan book increased 2%.

Close Brothers said growth in Motor Finance and the reversal of seasonality in Invoice Finance more than offset a weaker external environment for Property and the ongoing planned reduction in Premium Finance personal lines.

The annualised year-to-date net interest margin was 7.0%, compared with 7.1% at the half year.

The group said it continued to expect the margin to be slightly below 7% for the 2026 financial year because of loan book mix effects.

The annualised year-to-date bad debt ratio remained at 0.8%, unchanged from the half year, reflecting resilient credit performance despite the modelled impact of greater macroeconomic uncertainty.

Close Brothers said it still expected the full-year bad debt ratio to remain below its long-term average of 1.2%.

The group said it was making good progress on its cost-reduction and operational optimisation programme, including simplification of business and management structures and further outsourcing and offshoring.

It said it now expected to exceed its target of around £25m of annualised savings by the end of the financial year, after accelerating cost actions into the current year.

Close Brothers also said adjusted operating expenses were now expected to be below previous guidance of about £450m, while the group central functions operating loss was expected to be at the lower end of the £45m to £50m guidance range.

Following the FCA's March policy statement on the motor finance consumer redress scheme, Close Brothers increased its provision to £320m, resulting in an additional income statement charge of £30m in the quarter.

The provision represented the group's current best estimate of the cost of the scheme, including an assumption of delayed implementation due to legal challenges.

Close Brothers said it disagreed with elements of the scheme, but continued to believe the existing framework offered a quick, clear and certain route to resolving the issue.

It cautioned that the ultimate cost remained subject to legal challenges and further legal, regulatory or industry developments.

The group's common equity tier 1 capital ratio was unchanged at 14.3% at 30 April, while its total capital ratio rose to 19.5% from 18.8%, helped by the issue of 6.125% subordinated Tier 2 notes due 2036.

Chief executive Mike Morgan said the group had delivered a solid quarter and continued to execute its strategy through an important transitional year.

"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," he said.

Close Brothers said it remained on track to deliver the 2026 financial year in line with guidance, subject to current macroeconomic developments.

At 1008 BST, shares in Close Brothers Group were down 0.96% at 455.6p.

Reporting by Josh White for Sharecast.com.

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