Shares in lender Close Brothers (CBG) slid as doubts continued to swirl over the firm’s potential exposure to motor finance claims. The fall followed a 14% drop on Monday following a short-selling attack by Viceroy Research.
Claim and counter-claim
In a note titled ‘Commission Impossible’, Viceroy said it was short Close Brothers shares. It argued Close would have to double its existing provisions and its CET1 regulatory capital limits were ‘already at risk’.
The short seller went on to claim Close had ‘systematically misrepresented’ its exposure to the FCA’s forthcoming Motor Finance Consumer Redress Scheme. Viceroy estimates claims could be as much as £1.07 billion against current provisions of £300 million, leaving Close in need of restructuring.
The bank issued a statement strongly disagreeing with the Viceroy report regarding the impact on its finances. The firm said its provisioning was ‘in line with UK-adopted international accounting standards and follows a robust governance process’.
Major job losses
Close did however issue new financial guidance along with its H1 results, which showed an operating loss of £65 million. Included in the update was a plan to cut headcount by 20% or around 600 staff.
Annualised cost savings are seen at £25 million in FY26 and around £60 million in total by the end of FY27. Restructuring costs are seen at £10 million to £!5 million this year and £30 million to £40 million in FY27.
The banks expects costs related to complaints handling and motor finance commissions to be ‘single-digit millions’ this year. It also expects its CET1 ratio to be above its medium-term range of 12% to 13%.
Along with Black Horse, owned by Lloyds (LLOY), Close Brothers has been at the centre of speculation over potential motor finance claims. We have no special insight into how big its liabilities might be, nor do we have an axe to grind.
The bank is ‘controlling the controllable’ and getting on with repositioning itself, targeting segments where it sees strong, sustainable growth. As the CEO said, the focus is on ‘delivering our strategic priorities: simplify, optimise, grow’.
Read the press release here: https://www.closebrothers.com/investor-relations
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