Close Brothers looks to ‘accelerate’ after ‘messy’ year
Close Brothers is hoping to switch gears and “accelerate” after the motor finance scandal had the bank stuck in a rut.
The specialist lender’s share price has swerved between a low of 185.00 and peak of 555.00 over the last 12 months.
The car misselling saga has been the driving force of stock woes, sending banking shares across the UK tumbling.
The dramatic chapter culminated in a win for Close Brothers at the Supreme Court this year.
But even after a major rally on its victory in the top Court, the FTSE 250 bank has failed to bounce back to highs of 785.50 achieved prior to the City watchdog announcing an investigation into the motor finance market at the beginning of 2024.
In fresh results published on Tuesday, Close Brothers reported a pre-tax loss of £122m for the financial year ending July 31, which followed on from a £133m loss the year prior.
Adjusted operating profit from continued operations dropped 14 per cent to £144m.
Gary Greenwood, equity analyst at Shore Capital, said the results were “messy” due to various disposals and exits throughout the year.
He added should the firm have included losses from Brewery Rentals and its Vehicle Hire businesses “the result would have been a bit worse than both we and consensus expected”.
Simplification is theme of the year
A hefty £165m weighed on the bank’s books, along with a fresh £33m charge for customer redress and a £30m hit from its vehicle hire arm. The bank said it would offload the latter in a bid to boost profitability.
But it’s not the first business stripped back, with chief executive Mike Morgan setting out an operations overhaul as he eyes £60m of annualised cost savings in the next 3 years.
“I am going to stand behind it; I am going to be accountable for it,” Morgan told City PM.
“When I became chief executive in January, I had three strategic priorities: simplify, optimise and grow.
“Simplify is very much about exiting or restructuring underperforming businesses or those that aren’t strategically aligned,” he said.
The group dropped its specialist service provider division for the beer industry and announced it would scale back lending in its premium finance division in July.
In the same month, the bank sold its execution services and securities business Winterflood for £103.9m.
Morgan said his “ultimate” goal with the bank was for double digit returns but said over the last year targets were “a sharp, focused portfolio of businesses”.
Close Brothers’ chief: ‘We have opened the taps’
The group’s loan book took a hit over the last year with a four per cent contraction to £9.5bn, this came after a total pause in its motor finance division.
Morgan said the bank had also held back £700m of risk weighted assets amid the motor finance uncertainty, which he described as “deeply disappointing”.
But, with some uncertainty quelled, the banking chief said the “task now is to accelerate from here”.
“We have opened the taps now and it’s back on,” he told City PM.
However, ambitions face a major roadblock as the City awaits the Financial Conduct Authority’s consultation on motor finance, set to outline the next steps for the industry.
Equity analyst Benjamin Toms said the firm’s stock “re-rated” after the Supreme Court win but now have “ran out of upside”.
“Management are not able to lay out a medium-term vision for the bank without knowing the outcome of the FCA’s consultation… and therefore in the meantime shares could drift”.
Morgan said “clarity” and “finality” was needed from the consultation to allow the bank to close the chapter and noted the rhetoric from the regulator had “softened”.
“What’s encouraging is that you hear the FCA say we need a fully functioning motor market.
“Common sense should prevail.”
Morgan said the bank was now turning to using artificial intelligence to streamlining the assessment of motor finance complaints.
He said this use had provided a “really strong foundation to build that out through the organisation.”