Close Brothers has reported a £103.8 million loss in its half-year results for the six months to January 2025, compared to a profit of £87 million in H1 2024, saying its performance has been impacted by a £165 million provision relating to motor finance commissions. The lender is one of two named in the cases to be heard at the Supreme Court appeal next month.
A year ago, Close Brothers cancelled payment of its 2024 dividend and is also not currently making a payout this year, “given the continued significant uncertainty regarding the outcome of the FCA’s review of motor finance commission arrangements and the Supreme Court appeals.”
Close Brothers is the lender in the Hopcraft case, which the Court of Appeal found included the “secret” payment of commission in a used car finance arrangement.
The £165 million provision includes estimates for operational and legal costs, as well as estimates for any potential remediation for customers.
In the immediate aftermath of last October’s Court of Appeal ruling, Close Brothers temporarily halted writing motor finance business, which it expects to have resulted in around a £100 million drop in new business volumes, made up of a £80 million adverse impact on the loan book and some £4 million reduction in adjusted operating profit.
The bank said it is seeing a rise in complaints, although there is currently a pause on decision relating to those brought to the Financial Ombudsman Service until the Supreme Court hearing. Close Brothers has now doubled its estimate of managing the complaints and legal charges, from £10 million to £15 million to a new estimate of £22 million.
Close Brothers said it expects a hit of around £200 million in direct and indirect costs related to motor finance commissions for this financial year, on top of its £165 million provision.
The bank reported a 1% year-on-year decline in its loan book, and said it was evaluating a range of future options to further optimise RWAs, including the potential risk transfer of assets in motor finance and other portfolios.
However, Close Brothers chief executive Mike Morgan said: “Our goal is to ensure that, once the motor finance commission uncertainty has been resolved, the group is well placed to generate strong, sustainable returns.”
The Supreme Court is due to hear the appeal relating to the Court of Appeal judgment over three days, starting on April 1. It is likely that it will issue its own judgment some time in the summer, and the FCA has said if the court finds evidence of wrongdoing, the regulator is likely to introduce an industry-wide redress scheme.
