Key facts
- Close Brothers will cut around 600 jobs, nearly 25% of its 2,600-strong workforce.
- The company aims to reduce costs by £25m in the year to September, up from a previous £20m target.
- A further £60m in cost savings is planned for the next financial year, a year earlier than anticipated.
- An additional £135m provision was set aside for the car finance scandal, bringing the total to approximately £300m.
- The company reported a pre-tax operating loss of £65.5m for the six months to March 31.
Close Brothers is implementing significant job cuts and enhancing its cost-reduction strategy in response to mounting financial pressures, primarily driven by a car finance mis-selling scandal. The UK banking group announced it will eliminate approximately 600 positions, representing nearly a quarter of its 2,600 employees, over the next 18 months across its UK and Ireland operations. These cuts will be achieved through outsourcing, offshoring, and reducing office space, alongside the accelerated deployment of automation and artificial intelligence.
The company has also revised its cost-saving targets upwards. It now aims to reduce costs by £25m in the financial year ending September, an increase from the previous £20m target, and by an additional £60m in the following financial year, a year ahead of schedule. Chief executive Mike Morgan stated these actions are necessary to lower the cost base and increase agility.
These measures come as Close Brothers reported a pre-tax operating loss of £65.5m for the six months to March 31, an improvement from the £102m loss in the prior year. This figure includes an additional £135m provision for the car loans scandal, adding to a previous £165m provision, bringing the total expected bill to around £300m. The Financial Conduct Authority (FCA) is finalizing its compensation scheme for drivers affected by the scandal, facing pushback from lenders like Close Brothers, Santander, and Lloyds Banking Group regarding compensation calculations.
Close Brothers' shares have been volatile, slumping significantly after short-seller Viceroy Research alleged the bank had substantially misrepresented its exposure to the FCA's redress scheme, estimating a potential bill between £572m and £1.07bn. The bank has strongly disagreed with this report. Analysts note that while cost-cutting measures are positive, investor skepticism persists due to the uncertainty surrounding the final compensation sums, with the core business's strength being questioned.