Close Brothers braced for motor finance hit in interim results

Close Brothers Group PLC (LSE:CBG) reports interim results on Tuesday 18 March, having warned last that these results will include a £165 million motor finance provision.

The lender said the size of the provision also includes estimates for potential operational and legal costs, as well as estimates for potential remediation for affected customers.

Eventual costs could be significantly larger, analysts said, as the provision is based on probability weighted scenarios, using various assumptions about the expected customer redress scheme, which the Financial Conduct Authority has since confirmed it is likely to bring in following the Supreme Court decision expected in early April.  

Making this provision will reduce the group’s CET1 capital ratio to 12%, which remains well above the regulatory requirement of 9.7%, it said.

Last week, Close Bros completed the sale of its CBAM asset management armit, which should increase the group’s CET1 ratio back up another 120 basis points, “allowing us to simplify the group and sharpen our focus on the core business,” said CEO Mike Morgan, with the ratio predicted to return to around 13% by the end of the 2025 financial year.

Elsewhere, the first six months is expected to see the banking division make an operating profit of roughly £104 million, excluding the motor finance provision and other adjusting items, while its Winterflood market-making arm is expected to make a £1 million loss.