Close Brothers Announces Major Workforce Reduction and AI Push
Close Brothers, the UK-based specialist lender, has revealed plans to cut approximately 600 jobs, representing nearly a quarter of its 2,600-strong workforce. This move comes as the company reports further financial losses linked to the escalating UK motor finance scandal, with a pre-tax operating loss of £65.5 million for the six months ending 31 March.
Cost-Cutting Measures and AI Deployment
The job reductions will be implemented over the next 18 months across the bank's operations in the UK and Ireland. Close Brothers aims to achieve cost savings of £25 million by the end of September, up from an initial target of £20 million, and an additional £60 million in the following financial year, a year ahead of schedule. The cuts will be executed through outsourcing, offshoring, and reducing office space.
In parallel, the lender is accelerating the adoption of automation and artificial intelligence, stating that this will not only lower costs but also enhance customer experience. Chief Executive Mike Morgan commented, "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."
Financial Impact of Car Finance Scandal
The bank has set aside an extra £135 million for the car loans mis-selling saga, bringing its total provision to around £300 million. This follows the Financial Conduct Authority's (FCA) proposed compensation scheme for drivers affected by hidden or unfair commission payments. The FCA is expected to finalise its redress plans by the end of the month, facing opposition from lenders including Close Brothers, Santander, and Lloyds Banking Group over compensation calculations.
Market Reaction and Analyst Views
Shares in Close Brothers plummeted 14% on Monday after short seller Viceroy Research claimed the lender might need to double its provision to between £572 million and £1.07 billion. The stock fell a further 9.7% on Tuesday. Viceroy alleged that Close Brothers had "substantially misrepresented" its exposure to the FCA scheme, a claim the bank strongly denies.
Dan Coatsworth, head of markets at AJ Bell, noted, "It was telling that the share price didn't recover any of Monday's slump after Close Brothers denied the accusations, suggesting the market remains highly sceptical until there is clarity on compensation sums." Analysts at Panmure Liberum added, "The company is trying to do all the right things... but the elephant in the room remains motor finance."
Strategic Moves to Strengthen Balance Sheet
In response to the mounting compensation bill, Close Brothers is taking steps to bolster its balance sheet. This includes the sale of Winterflood, a broker, and its asset management businesses. Founded in 1878 by William Brooks Close and his brothers, the bank continues to navigate significant challenges in the lending sector.
