Close Brothers to axe fifth of jobs after motor finance ‘wipeout’ warning
Close Brothers has warned it will cull as much as a fifth of its headcount as the bank continued its aggressive cost-cutting strategy following mounting losses linked to the motor finance scandal.
The FTSE 250 bank said it would axe a staggering 600 full-time roles by the end of the 2027 financial, which represents around 20 per cent of the firm’s total staff. The job cuts come as the lender hopes to reduce its costs by around £85m.
Mike Morgan, chief executive of Close Brothers, told CityAM he would like “to go further” on cost-cutting, after accelerating reduction goals to £25m from £20m for this year and pulling the goal of £60m forward by two years.
Questioned whether that could mean more job cuts, Morgan said: “I think it’s too early to say how we would move forward… it will be a combination of cost coming out as well as growing the business.”
He added the business would not be able to “shrink our way to greatness”.
It follows the bank recording a loss of £65.5m in the first half of the year after it was forced to hike its provisions for the motor finance scandal. The figure did mark an improvement from a loss of £102.2m in the same period the year prior.
Losses were driven by the whopping £135m set aside in October following the UK’s financial watchdog outlining proposals for its industry-wide redress scheme for the car mis-selling saga. The extra funds dragged the bank’s total provisions to £300m.
The bank’s stock sank as much as ten per cent following Tuesday’s update, before clawing back some gains to a three per cent loss.
“Job cuts and guidance for higher than previously expected annual cost savings would normally be the right ingredients to drive a share price higher, but not in Close Brothers’ case,” said Dan Coatsworth, head of markets at AJ Bell.
“The core business doesn’t look strong enough to warrant investors taking the risk of buying in the face of considerable uncertainty.”
Close Brothers faces bombshell report
Operating income tumbled to £333.8m, down from £355.4m in the same period last year, impacted by a lower average loan book and the strategic wind-down of certain business lines.
Meanwhile expenses fell to £359.8m, down from £409.5m.
But the fresh update on Tuesday followed a bombshell report from short-seller Viceroy, which warned the bank would have to “at least” double its existing provisions following “examination” of the watchdog’s redress scheme.
The note accused Close Brothers of “systematically misrepresenting” its exposure to the motor finance scandal and warned in a blue-sky scenario the bank could face regulatory intervention and leave shareholders “substantially wiped out”.
Morgan hit out at the report on Tuesday, telling CityAM: “We strongly disagree with this report. You know, we operate to the highest standards… it’s non-negotiable.”
The bank stuck to previous guidance on its dividend that the reinstatement will not come until there is further clarity on the financial watchdog’s forthcoming motor finance redress scheme.
“Until we have clarity around what the capital position of the group is, then it would be very difficult to restart the dividend, but we will constantly look at the facts and circumstances as we move forward,” Morgan said.
The banking chief said he wasn’t “prepared to discuss” whether the bank would enter another legal battle should the regulator’s redress scheme not appropriately change, adding the bank would “see what’s coming out and then take a view”.