Close Brothers has announced plans to cut around 600 job, equivalent to roughly a fifth of its workforce, as the lender accelerates a sweeping cost-cutting programme in response to mounting pressure from the motor finance mis-selling scandal.
The restructuring, confirmed by chief executive Mike Morgan, will reduce headcount to approximately 2,000 over the next 21 months and is intended to restore investor confidence following renewed scrutiny of the group’s potential compensation liabilities. The move comes amid heightened market volatility after short-seller Viceroy Research claimed the lender’s total compensation bill could reach as high as £1.23 billion, far exceeding the company’s current £300 million provision.
Shares in Close Brothers have come under sustained pressure, falling sharply at the start of the week and continuing to slide as investors digested the scale of potential exposure. The lender is widely regarded as one of the most exposed UK financial institutions to the car finance scandal relative to its size, with motor loans accounting for around £2 billion of its £9.5 billion loan book.
The scandal, which first emerged two years ago, centres on the failure of lenders to adequately disclose commission arrangements paid to car dealers for arranging finance. The Financial Conduct Authority is expected to set out its final redress scheme imminently, with earlier estimates suggesting the total industry bill could reach £11 billion.
Morgan defended the bank’s approach to estimating its liabilities, insisting that its £300 million provision reflects a probability-weighted assessment in line with accounting standards and supported by legal and audit advice. However, the refusal to disclose detailed assumptions behind that figure has fuelled scepticism among investors and opened the door for more aggressive external estimates.
The chief executive dismissed Viceroy’s analysis but acknowledged the uncertainty surrounding the final outcome. He said the eventual cost could be “materially higher” or “materially lower” depending on how the regulator structures compensation and how many borrowers come forward with claims.
Against this backdrop, Close Brothers is moving aggressively to reshape its cost base. The group has already divested its Winterflood broking arm and its asset management business, scaled back growth plans and suspended its dividend in an effort to conserve capital. The latest measures will focus on streamlining operations across its core divisions, including retail lending and commercial finance, where the bulk of job losses are expected to fall.
The restructuring will incur an upfront cost of around £25 million but is expected to deliver annual savings of £60 million by the end of 2027. The company said it would centralise shared services, reduce reliance on third-party providers and cut property and operational expenses as part of a broader efficiency drive.
Artificial intelligence is also set to play a growing role in the transformation, with the bank aiming to deploy AI tools “at pace” to reduce costs and improve customer experience. The move reflects a wider trend across the financial services sector, where firms are increasingly turning to automation and digitalisation to offset rising regulatory and operational pressures.
Despite the cost-cutting programme, Close Brothers reported a mixed set of interim results. The group posted a statutory loss of £65.5 million for the six months to January, an improvement on the £102.2 million loss recorded a year earlier. Adjusted operating profit fell to £65.2 million, down from £80.5 million, reflecting ongoing headwinds.
Its core capital ratio improved to 14.3 per cent, comfortably above regulatory requirements, providing some reassurance on balance sheet strength. However, analysts warn that a significantly higher compensation bill could erode that buffer and materially impact shareholder value.
The situation has drawn comparisons with the payment protection insurance (PPI) scandal, which ultimately cost UK banks more than £50 billion, far exceeding initial provisions and leaving investors wary of underestimating liabilities in mis-selling cases.
Morgan insisted that lessons from the PPI episode had informed the bank’s current approach, arguing that regulatory scrutiny and accounting standards are now far more rigorous. Nonetheless, the combination of regulatory uncertainty, investor scepticism and operational restructuring highlights the scale of the challenge facing the lender.
With the FCA’s final ruling imminent and market confidence fragile, Close Brothers is entering a critical period that will determine both the ultimate financial impact of the scandal and the success of its efforts to rebuild credibility with shareholders.
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Close Brothers to cut 600 jobs as motor finance scandal pressures finances
