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Close Brothers Group PLC on Tuesday said it will offload its loss-making vehicle hire business as its continues to restructure amid motor finance litigation uncertainty. The London-based merchant bank said it will take a £30 million impairment charge relating to the exit, stating the vehicle hire division is ‘not strategically aligned with our core specialist lending expertise.’ Close Brothers has been restructuring its business in the face of the probe into motor finance commissions by the UK Financial Conduct Authority. The company said it welcomed the positive outcome of the UK Supreme Court judgement in August, which provided ‘much-needed clarity to the industry’, and overturned the Court of Appeal’s ruling in respect of the Hopcraft case. The FCA is still consulting on a redress scheme. As a result, Close Brothers has left its £165 million provision charge relating to motor finance unchanged. But Close Brothers said it is implementing a ‘proactive customer remediation programme’ in motor finance, which has resulted in a separate provision of £33.0 million in the 2025 financial year. In response to the impact of motor finance charges, Close Brothers has acted to improve its capital position, selling Close Brothers Asset Management, City broker Winterflood, and Close Brewery Rentals Ltd. Chief Executive Mike Morgan said the actions taken provide the ‘foundation for the next stage of our journey: driving efficiency and capturing growth’. ‘The task now is to accelerate from here. I am confident we are on the right path and that we will return this business to double-digit returns.’ Close Brothers said the actions set a clear path back to double-digit return on tangible equity by the 2028 financial year, and rising thereafter. ‘We plan to provide a full update on our pathway to rising RoTE early next year, once we have clarity on the outcome of the FCA’s consultation on an industry wide redress scheme in respect of motor finance commissions and its impact on the group,’ the company added. Close Brothers swung to an operating pretax loss of £122.4 million for the twelve months to the end of July from a profit of £132.7 million in the prior year. Adjusted operating profit from continuing operations slumped 14% to £144.3 million from £167.6 million. Net interest income fell 2.0% to £568.8 million from £580.7 million, with operating income down 7.6% to £659.5 million from £713.4 million. The net interest margin declined to 7.2% from 7.4%. The financial firm’s CET1 capital ratio improved to 13.8% from 12.8%, reflecting the sale of Winterflood and despite the impact of the motor finance provision. No dividend was declared, unchanged from a year ago, ahead of the outcome of the FCA review. Close Brothers said it has delivered £25 million of annualised cost savings by the end of the 2025 financial year and will deliver at least £20 million of additional annualised savings per annum in each of the next three years. Looking ahead, Close Brothers expects the net interest margin in the 2026 financial year to be ‘slightly lower’ than 7% due to loan book mix impacts. It projects the operating loss from group central functions to be around £50 million, amid a reduction in legal and professional fees. Shares in the London-based merchant banking group were down 3.3% to 479.80 pence each in London on Tuesday morning. Copyright 2025 Alliance News Ltd. All Rights Reserved.
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