Close Brothers shares drop as costs rise from motor finance threat
Close Brothers said fees and expenses were still at an “elevated level” in a third-quarter update on Wednesday as motor finance troubles continued.
The group’s net expenses hit £13.9m for the period, compared to £11.6m for the third-quarter in 2024.
The lender said it continued to experience heightened “professional fees and expenses” following the Financial Conduct Authority’s motor finance review and the Supreme Court appeal.
The group’s shares were down 0.3 per cent as markets opened on Tuesday before tumbling nearly three per cent in early trading.
Close Brothers made no further update on the landmark case, which is expected to provide a ruling on the use of discretionary commission arrangement in the motor finance market by early Summer.
The firm, along with South African bank FirstRand, challenged the October Court of Appeal ruling that sided with consumers who complained about “secret” commissions on car loans.
Close Brothers shares sank 6.5 per cent following the ruling. But the stock has since turned a tide, gaining over 70 per cent in the last six months.
Shore Capital analysts Gary Greenwood said: “There is nothing new to say on motor finance as we await the Supreme Court judgement that is expected not before July.
“The Group has already set aside a provision of £165m in this regard, with our forecasts conservatively including a further £135m in full-year 2026, giving a total of £300m.”
As top FTSE 100 banks faced a grilling by the Treasury Committee on Tuesday, Lloyds Bank’s chief executive Charlie Nunn said he had seen “no evidence of harm” in the market.
Close Brothers’ loan book tumbles
The FTSE 250 firm said lending had decreased 0.9 per cent in the quarter to £9.7bn. This was down 3.5 per cent for the year-to-date.
Reduced activity in its asset finance business and a competitive market environment in premium finance were cited as driving the headwinds.
For the year-to-date, Close Brother’s net interest margin (NIM) – a key metric measuring a bank’s profitability from lending – had shrunk to 7.1 per cent. In the first half of 2025, NIM was 7.3 per cent.
The bank said it expects the margin to be around seven per cent for the full-year, which it will report at the end of summer.
But the lender’s CET1 ratio – an indicator of its financial strength – was expected to be above its medium-term target range of 12 to 13 per cent for the financial year-end.
Mike Morgan, Close Brothers’ chief executive, said: “We are taking proactive steps to ensure that the group is well positioned to generate strong, sustainable returns once the motor finance commissions uncertainty has been resolved.
“As outlined in March, my priorities include focusing on simplification of the group, improving operational efficiency, and driving sustainable growth. Alongside a stronger capital position, delivering on these priorities will create a more efficient and resilient business, one that delivers greater value for shareholders and continues to support customers, as we have through many cycles.”