FCA probe drive Close Brothers to build up balance sheet

Close Brothers plans to boost its capital position by around £400m, having already scrapped this year’s dividend and placed next year’s payout under review, in response to continuing uncertainty around the potential financial impact of the outcome of the FCA’s review of motor finance commission disclosures.

Introducing the lender’s half year results to 31 January 2024, chief executive Adrian Sainsbury said: “The FCA’s review of the motor finance industry is ongoing and it would be premature to predict the outcome or estimate the potential impact on the group. The board however recognises the paramount importance of preparing the group for a range of outcomes from this review.

“As part of this, the board is taking a number of decisive actions to strengthen our capital position materially. These include the difficult decision taken last month not to pay dividends in respect of the current financial year. In addition, we are taking steps to optimise our risk weighted assets and reduce costs.”

Close Brothers said these measures, which also include a £100m retention of earnings, are set to grow its common equity tier 1 capital by around £400m by the end of the 2025 financial year.

However, the FTSE 250 bank said there is currently “no legal or constructive obligation” relating to the FCA probe which required specific action over the period.

Sainsbury reported loan book growth of 4% to hit £9.9bn for the six months, “driven by strong growth in property and continued good demand in asset finance and the UK motor finance business”.

Close Brothers shares rose by 14% immediately following the announcement but remain some 50% lower than prior to the FCA announcement at the beginning of the year. The bank is estimated to have the biggest relative exposure to any compensation claims from the FCA review, with analysts’ estimates suggesting the figure could be up to £350m.