Close Brothers Announces Major Workforce Reduction Amid Motor Finance Crisis
Close Brothers, a prominent FTSE 250 bank, has revealed plans to eliminate 600 full-time positions by the end of the 2027 financial year. This significant reduction represents approximately 20 percent of the company's total workforce, as the institution grapples with mounting losses linked to the ongoing motor finance mis-selling scandal.
Cost-Cutting Measures and Financial Provisions
The bank aims to achieve cost savings of roughly £85 million through these redundancies. This aggressive restructuring follows a challenging financial period, with Close Brothers reporting a £65.5 million loss in the first half of the year. While this figure marks an improvement from the £102.2 million loss recorded in the same period the previous year, it underscores the severe impact of the motor finance controversy.
Losses have been exacerbated by substantial provisions set aside for the industry-wide redress scheme. In October, Close Brothers allocated £135 million after the UK's financial watchdog outlined proposals for compensating victims of car finance mis-selling. This brings the bank's total provisions to an alarming £300 million, as confirmed in recent reports.
Regulatory Scrutiny and Market Concerns
The situation intensified following a critical report from short-seller Viceroy, which warned that Close Brothers might need to "at least" double its existing provisions upon further examination of the regulator's redress scheme. The report accused the bank of "systematically misrepresenting" its exposure to the scandal and suggested that, in a worst-case scenario, regulatory intervention could leave shareholders "substantially wiped out."
In response, Close Brothers has maintained its earlier guidance on dividends, stating that reinstatement will not occur until there is greater clarity regarding the financial regulator's upcoming motor finance compensation program. This cautious approach reflects the ongoing uncertainty surrounding the scandal.
Financial Performance and Strategic Priorities
Operating income for the period dropped to £333.8 million, down from £355.4 million in the corresponding period last year. This decline was attributed to a reduced average loan book and the deliberate winding down of certain business operations. Meanwhile, expenses decreased to £359.8 million from £409.5 million, as Chief Executive Mike Morgan advanced his cost-reduction restructuring program.
Mike Morgan emphasized the bank's strategic focus, stating, "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 provisions highlight the profound challenges facing Close Brothers as it navigates the fallout from the motor finance scandal. The bank's efforts to streamline operations and mitigate losses will be closely watched by investors and regulators alike in the coming months.
