Close Brothers Group has announced initiatives to boost its financial position by £400 million by implementing cost-saving measures in anticipation of potential repercussions from a major investigation into car finance mis-selling practices.
The firm announced the news as part of its half-year results for the six months to January 31, 2024.
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The FTSE 250-listed banking group, which oversees a motor finance arm, has underscored the importance of readiness in the face of various potential outcomes stemming from an ongoing examination by the UK’s financial regulatory authority, the Financial Conduct Authority (FCA).
The FCA review is currently scrutinising the repercussions of concealed discretionary commission (DiC) arrangements, a practice banned by the FCA in 2021, which allowed brokers, including car dealers, to elevate interest rates on car loans to augment their commission earnings.
Recent forecasts in the finance press suggest Close Brothers could face up to £200 million in payouts, with the industry looking at total redress of up to £16 billion.
While the FCA’s review conclusions are not expected until later this year, Close Brothers said it would be premature to speculate on the potential ramifications. Adrian Sainsbury, Close Brothers’ chief executive, emphasised the board’s acknowledgement of the need to prepare for various potential outcomes arising from this review.
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By GlobalDataClose Brothers has taken steps to strengthen its capital position. These actions include closely managing business expenses, to generate around £400 million in additional capital by the end of the 2025 financial year.
Half-year results
Additionally, Close Brothers has opted to suspend its dividend to shareholders for the ongoing financial year as a strategic move to control costs effectively. These announcements come against the backdrop of Close Brothers witnessing a remarkable surge in statutory operating profit before tax, soaring from £11.7 million to £93.8 million during the same six-month period for the first half of 2023, reflecting an impressive increase of over 700%. Despite this substantial rise, operating income saw a slight dip of 1%, decreasing from £474.3 million to £470.8 million. The profit surge contrasts with the preceding year, which experienced the impact of one-off costs associated with legal services lender Novitas, a firm previously acquired by Close Brothers.
Following Black Horse’s announcement in February that it has allocated £450 million to brace for the FCA probe, Close Brothers would appear to be bolstering its balance sheets similarly.
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