Summary of the Close Brothers Situation
This article details the pressures facing Close Brothers bank, focusing on cost-cutting measures and the potential for takeover due to the ongoing motor finance scandal.Here’s a breakdown of the key points:
Financial Challenges & Cost Cutting:
* Notable Savings Potential: Close Brothers is aiming for nearly £32m in savings.
* Restructuring: This includes dismantling its complex management structure (25 business units) which could save £5m.
* Headcount Reduction: A 5% reduction in staff is planned, perhaps saving £9m and improving the bank’s loans-per-employee ratio.
* Improved Profitability: These measures could lower the cost-to-income ratio to 56% (below the current target of 59%) and reduce the cost base to £402m.
* Efficiency Concerns: Analysts highlight that Close Brothers is significantly less efficient than competitors like OSB, Paragon, and Metro, and is one of the least cost-efficient lenders in Europe.
Motor Finance Scandal & Takeover Risk:
* Redress Provisions: The bank has nearly doubled its provisions for motor finance redress to £300m following FCA guidance.
* Dispute with FCA: Close Brothers disputes the FCA’s approach to assessing “unfairness” in the redress scheme, arguing it doesn’t align with a recent Supreme Court ruling.
* Legal Battles: The bank fought (and initially won at the Supreme Court, but lost at the Court of Appeal) regarding the legality of discretionary commission arrangements with car brokers.
* Takeover Vulnerability: If the motor finance scandal results in crippling financial penalties, Close Brothers could become a takeover target amidst industry consolidation.
Industry Context:
* Consolidation: The banking sector is experiencing consolidation, with smaller challengers being acquired by larger players.
In essence, Close Brothers is under pressure to improve its efficiency and navigate a potentially costly legal battle related to motor finance practices, which could ultimately lead to a takeover.
