Close Brothers has announced cost-cutting plans to cut around 600 jobs – nearly a quarter of its workforce – over the next 18 months amid uncertainty over the true scale of its motor finance redress liabilities.
The restructuring programme will impact roles across the UK and Ireland and forms part of a wider effort to streamline operations and improve efficiency.
The announcement follows criticism from short-seller Viceroy Research, which claimed the bank has “systematically misrepresented” its exposure to the motor finance redress scheme which will soon be published by the Financial Conduct Authority (FCA).
– Close Brothers to cut 600 jobs as cost-cutting drive accelerates
– Viceroy estimates £1.23bn true figure vs £300m provision
– Close Brothers rejects claims, defends accounting and governance
Close Brothers has announced cost-cutting plans to cut around 600 jobs – nearly a quarter of its workforce – over the next 18 months amid uncertainty over the true scale of its motor finance redress liabilities.
The restructuring programme will impact roles across the UK and Ireland and forms part of a wider effort to streamline operations and improve efficiency.
Motor finance scandal exposure questioned
The announcement follows criticism from short-seller Viceroy Research, which claimed the bank has “systematically misrepresented” its exposure to the motor finance redress scheme which will soon be published by the Financial Conduct Authority (FCA).
Viceroy estimates potential liabilities could range between £572m and £1.23bn, significantly higher than Close Brothers’ current £300m provision.
The FCA estimates around 85% of 14m eligible consumers will take part in the scheme, which would mean compensation payouts of £8.2bn. At that level of take-up, the estimated costs to firms of implementing the scheme would be £2.8bn, taking the total cost to £11bn.
Close Brothers said it “strongly disagrees” with the claims and maintains its provisioning is aligned with accounting standards and supported by robust governance processes.
In a half-yearly trading statement issued on March 17, Close Brothers stated: “A number of assumptions have been applied in the calculation of the provision, with certain assumptions representing key sources of estimation uncertainty. These relate to the final scheme rules, customer claim rates, costs to administer the scheme, scenario weightings and any further legal, regulatory or industry developments. A 10% relative increase or decrease in the assumed claim rates would result in a £27.5 million increase or decrease in the estimated provision.
However, it did go on to state: “There remains significant uncertainty over the FCA’s proposals in relation to a redress scheme and a significant number of responses were submitted to the consultation. Therefore the ultimate cost to the group could be materially higher or lower than the provision taken and remains subject to further clarity from the FCA on the scope and design of any redress scheme and any further legal, regulatory or industry developments.”
The outcome of the motor finance redress scheme has created uncertainty across the automotive retail and lending sectors, with many fearing they could potentially face significant financial exposure.
Black Horse Motor Finance’s owner, Lloyds Banking Group – one of the most exposed lenders – confirmed in October that it was increasing its provision by £800 million to a total of £1.95 billion to settle the anticipated number of eligible claims.
Cost-cutting and restructuring
The bank said it aims to deliver cost savings of £25 million in its current financial year, rising to a further £60m next year, a year ahead of previous targets.
Measures include outsourcing and offshoring roles, reducing its office footprint and accelerating the adoption of artificial intelligence across the business.
Mike Morgan, chief executive at Close Brothers, said: “While the impact on affected colleagues is regrettable, these actions are necessary to structurally lower our cost base, while increasing our agility and ability to serve our customers.”
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