Close Brothers to Cut 600 Jobs Amid Motor Finance Scandal

Close Brothers is set to reduce its workforce by 600 positions, representing 20 per cent of its staff, as the company seeks to restore shareholder confidence following escalating concerns regarding the motor finance scandal. Chief Executive Mike Morgan expressed regret over the decision but noted the necessity of implementing a cost-cutting plan a year ahead of schedule.

Recent scrutiny from Viceroy Research has called the company’s estimate of £300 million in compensation for mis-sold car finance into question. Shares in Close Brothers declined sharply amid fears that the total compensation bill may grossly exceed earlier projections. Viceroy has suggested that the actual liability could range between £572 million and £1.23 billion.

The job reductions will affect various divisions of the company, mainly its retail lending and commercial loans sectors. Following prior strategic moves, including the disposal of its Winterflood broking division and asset management arm, the firm has now initiated measures to conserve capital, including the suspension of dividends.

Close Brothers indicated that these job cuts, to be executed over the next 21 months, would incur an initial cost of £25 million but are expected to reduce annual costs by £60 million by the end of 2027. The firm aims to increase its operational agility and customer service standards.

Close Brothers reported a loss of £65.5 million for the six months ending January, a decline from a £102.2 million loss during the same period a year prior. The motor finance scandal, which has been under the scrutiny of the Financial Conduct Authority, has focused on the industry’s failure to properly disclose commission arrangements associated with vehicle finance deals.

As the regulator prepares to unveil a final redress scheme, speculation grows about the total financial obligations for lenders. Close Brothers is among the companies most exposed to this issue, with £2 billion in car loans out of a total loan book of £9.5 billion.

Mike Morgan defended the company’s estimates, asserting adherence to international accounting standards, while acknowledging the potential for significant variability in final compensation figures.