Close Brothers to Cut 600 Jobs Amid £300M Car Finance Scandal Bill

Close Brothers is set to reduce its workforce by approximately 600 employees – nearly a quarter of its total staff – as the banking group navigates the fallout from a substantial compensation bill related to the motor finance scandal. The cuts, impacting teams across the UK and Ireland, are part of a broader cost-cutting initiative aimed at addressing financial pressures and bolstering the firm’s capital strength.

Financial Strain and the Car Finance Scandal

The job reductions come as Close Brothers reported pre-tax operating losses of £65.5 million (€75.8 million) for the six months ending March 31st. This loss is largely attributed to an additional £135 million (€156.3 million) provision set aside to cover potential payouts stemming from the mis-selling of car loans. While an improvement on the £102.2 million (€108.3 million) loss reported in the same period last year, the ongoing financial impact of the scandal is clearly weighing on the company’s performance. The total provision now stands at around £300 million (€347.4 million), reflecting the anticipated costs of compensating customers who were sold car loans with hidden or unfair commission payments. More information on the FCA’s proposed compensation scheme can be found on the Financial Conduct Authority website.

The origins of this issue lie with the Financial Conduct Authority (FCA) investigation into commission practices within the motor finance industry. The FCA determined that certain lenders may have incentivized car dealers to increase loan amounts, leading to higher interest charges for consumers. The regulator is now implementing a redress scheme to compensate affected drivers, and Close Brothers, along with other lenders like Santander and Lloyds Banking Group, has been pushing back against the FCA’s calculations for determining compensation amounts.

Cost-Cutting Measures and Strategic Shifts

Beyond the workforce reduction, Close Brothers is implementing a range of cost-cutting measures. The firm initially targeted £20 million (€23 million) in savings for the current financial year, ending in September, but has now increased that target to £25 million (€28.9 million). Further cost reductions of around £60 million (€69.4 million) are planned for the following financial year, a year earlier than originally anticipated. These measures include outsourcing and offshoring work, reducing the company’s office footprint, and accelerating the implementation of artificial intelligence technologies to streamline operations.

The company has also been actively streamlining its portfolio through strategic sales. Close Brothers has recently agreed to sell its Winterflood arm and its asset management businesses, moves designed to free up capital and focus on core banking operations. This suggests a strategic recalibration in response to the financial pressures and regulatory challenges it faces.

Impact on Stakeholders

The job cuts will inevitably have a significant impact on the affected employees and their families. While Close Brothers CEO Mike Morgan acknowledged the regrettable nature of the cuts, he emphasized their necessity in structurally lowering the company’s cost base and enhancing its agility. The reduction of nearly a quarter of the workforce represents a substantial upheaval for the organization and its employees.

Investors have also reacted negatively to the news. Shares in Close Brothers plummeted 14 percent on Monday following a report from short seller Viceroy Research, which alleged that the bank had “substantially misrepresented” its exposure to the FCA’s redress scheme and would likely need to at least double its existing £300 million provision. Close Brothers strongly refuted the claims made by Viceroy Research, but the market reaction underscores the level of concern surrounding the potential financial implications of the car finance scandal. You can read more about Viceroy Research’s report on their website.

The Viceroy Research Report and Market Reaction

The Viceroy Research report specifically questioned the adequacy of Close Brothers’ provision for the car finance scandal, suggesting that the bank had underestimated its potential liabilities. The firm argued that Close Brothers’ calculations were overly optimistic and failed to account for the full extent of potential claims. This report triggered a significant sell-off of Close Brothers shares, highlighting the sensitivity of the market to news related to the car finance scandal and the potential for further financial fallout.

Regulatory Scrutiny and the Road Ahead

The FCA is expected to finalize its plans for the redress scheme by the end of March 2026. The outcome of this final determination will be crucial in determining the ultimate cost to Close Brothers and other lenders involved. The ongoing dispute between the FCA and lenders over the calculation of compensation amounts suggests that the resolution of this issue may be protracted, and contentious.

Close Brothers is actively working to strengthen its financial position in anticipation of the compensation bill. The cost-cutting measures, asset sales, and strategic shifts are all aimed at bolstering the company’s capital reserves and ensuring its long-term sustainability. However, the ongoing regulatory scrutiny and the potential for further financial losses related to the car finance scandal pose significant challenges for the banking group.

Looking Ahead: Procedural Steps

The next few months will be critical for Close Brothers. The FCA’s final decision on the redress scheme will set the stage for the next phase of the process. Close Brothers will need to assess the implications of the FCA’s ruling and adjust its financial projections accordingly. The company will also continue to implement its cost-cutting measures and streamline its operations. Investors will be closely monitoring the company’s progress and assessing the potential impact of the car finance scandal on its future performance. Further details on Close Brothers’ financial performance and strategic initiatives can be found in their investor relations section.