Close Brothers Announces Major Workforce Reduction Amid Motor Finance Crisis
Close Brothers has revealed plans to cut approximately 600 full-time positions, representing around 20 percent of its total workforce, as part of an aggressive cost-cutting strategy in response to mounting losses linked to the motor finance scandal.
Substantial Job Cuts and Financial Losses
The FTSE 250 bank confirmed on Tuesday that it will axe these roles by the end of the 2027 financial year. This decision follows the bank recording a loss of £65.5 million in the first half of the year, an improvement from a loss of £102.2 million in the same period the previous year. However, the losses were primarily driven by the bank setting aside £135 million in October after the UK's financial watchdog outlined proposals for an industry-wide redress scheme related to car mis-selling.
This additional provision has increased the bank's total provisions to £300 million, highlighting the severe financial impact of the scandal.
Short-Seller Report and Regulatory Concerns
The announcement came after a bombshell report from short-seller Viceroy, which warned that Close Brothers might need to at least double its existing provisions following an examination of the watchdog's redress scheme. The report accused the bank of systematically misrepresenting its exposure to the motor finance scandal and warned that in a worst-case scenario, regulatory intervention could leave shareholders substantially wiped out.
In response, Close Brothers has maintained its previous guidance on dividends, stating that reinstatement will not occur until there is further clarity on the financial watchdog's forthcoming motor finance redress scheme.
Financial Performance and Strategic Overhaul
Operating income for the period tumbled to £333.8 million, down from £355.4 million in the same period last year. This decline was impacted by a lower average loan book and the strategic wind-down of certain business lines. Meanwhile, expenses fell to £359.8 million, down from £409.5 million, as Chief Executive Mike Morgan continues to push forward with his cost-cutting overhaul.
Morgan emphasized the bank's focus on delivering strategic priorities: simplify, optimise, and grow. He stated, "We remain focused on delivering our strategic priorities: simplify, optimise, and grow. With the simplification of our business largely complete, we are firmly in the optimisation stage, and have accelerated our cost savings plans."
The job cuts and financial struggles underscore the ongoing challenges faced by Close Brothers as it navigates the fallout from the motor finance scandal and seeks to stabilise its operations in a turbulent market.
