Close Brothers Announces Major Workforce Reduction and AI Expansion
In a significant restructuring move, the UK banking group Close Brothers has revealed plans to cut approximately 600 jobs, representing nearly a quarter of its 2,600-strong workforce. This decision comes as the specialist lender grapples with mounting losses linked to the UK motor finance scandal, prompting a strategic shift towards cost reduction and technological advancement.
Cost-Cutting Measures and AI Deployment
The job cuts will be implemented over the next 18 months across the company's operations in the UK and Ireland. Close Brothers aims to achieve cost savings of £25 million by the end of September, up from an initial target of £20 million, with an additional £60 million reduction planned for the following financial year, accelerated by one year. The bank intends to achieve these savings through outsourcing, offshoring work, and reducing office space.
Simultaneously, the lender is aggressively rolling out automation and artificial intelligence technologies. In a statement, Close Brothers emphasized that this move is designed not only to lower costs but also to enhance customer experience. Chief Executive Mike Morgan commented, "While the impact on affected colleagues is regrettable, these actions are necessary to structurally lower our cost base while increasing our agility and ability to serve our customers."
Financial Losses and Car Finance Scandal Impact
Founded in 1878 by William Brooks Close and his brothers Fred and James, Close Brothers reported a pre-tax operating loss of £65.5 million for the six months ending March 31. This loss follows an additional provision of £135 million set aside for the car loans mis-selling saga, marking an improvement from the £102 million loss recorded the previous year. The latest provision adds to a previous £165 million, bringing the total expected bill to around £300 million to cover costs from the scandal.
The Financial Conduct Authority (FCA) has proposed a compensation scheme for drivers affected by hidden or unfair commission payments on car loans, with final plans due by the end of this month. Close Brothers, along with other lenders like Santander and Lloyds Banking Group, has expressed concerns over the FCA's calculations for consumer compensation.
Share Price Volatility and Market Skepticism
Close Brothers' shares plunged 14% on Monday after short seller Viceroy Research claimed the lender would need to at least double its provision for car finance, estimating it between £572 million and £1.07 billion. The stock fell a further 9.7% on Tuesday. Viceroy accused Close Brothers of "substantially misrepresenting" its exposure to the FCA's redress scheme, a claim the bank "strongly disagrees with."
Dan Coatsworth, head of markets at AJ Bell, noted that the share price failed to recover despite the bank's denial, indicating ongoing market skepticism. He stated, "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. The core business doesn't look strong enough to warrant investors taking the risk of buying in the face of considerable uncertainty."
Analysts at Panmure Liberum echoed this sentiment, highlighting that while the company is taking proactive steps, the "elephant in the room remains motor finance," with the share price expected to stay volatile until clarity emerges on compensation sums.
Strategic Moves to Strengthen Balance Sheet
In response to the escalating compensation bill, Close Brothers is also shoring up its balance sheet by divesting non-core assets. The bank has sold Winterflood, a broker, and its asset management businesses. These measures, combined with the job cuts and AI rollout, aim to position the lender for future stability amid ongoing challenges in the financial sector.
