REG - Close Bros Grp PLC - Trading Statement

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RNS Number : 2596I  Close Brothers Group PLC  20 November 2025

 

 Scheduled Q1 2026 Trading Update
 20 November 2025

Close Brothers Group plc ("the group" or "Close Brothers") today issues its
scheduled trading update relating to the first quarter of its 2026 financial
year from 1 August 2025 to 31 October 2025.

Mike Morgan, Chief Executive, said:

"We have made a solid start to the year and are progressing at pace with our
cost reduction initiatives, focusing on the delivery of our strategic
priorities to improve operational efficiency and drive growth. Our capital
position remains strong, and we are well positioned for future growth as a
specialist banking group."

"We continue to engage with the FCA following the publication of their
consultation in respect of motor finance commissions. We are committed to
achieving a fair outcome for customers but do not believe the proposed redress
methodology appropriately reflects actual customer loss or would deliver a
proportionate and fair outcome in its current form."

Performance in the three months to 31 October 2025(1)

The Banking business continued to deliver good underlying profitability,
benefitting from a strong net interest margin, stable bad debt and an ongoing
focus on costs. The loan book decreased 1% in the quarter to £9.4 billion (31
July 2025: £9.5 billion), reflecting continuing impact on demand from the
uncertain external environment. We delivered growth in our Asset Finance and
Motor Finance businesses, which was offset by an increase in the level of
repayments and lower volumes in Property Finance and Invoice Finance. We have
repositioned the business to focus on segments where we see mid to high
single-digit growth potential through the cycle, leaving us well positioned to
benefit as the economy and demand recover.

The annualised year-to-date net interest margin was 7.1%, benefitting from
temporary higher behavioural fee income. As stated at the 2025 preliminary
results, we expect the net interest margin to be slightly lower than 7% for
the 2026 financial year, reflecting loan book mix impacts.

We are making progress on our initiatives to deliver additional cost reduction
and optimise operational processes, through further consolidation of centrally
provided functions, outsourcing and offshoring, and the simplification and
rationalisation of technology, including automation and the use of artificial
intelligence. We are on track to deliver c.£20 million of annualised savings
in the 2026 financial year and at least c.£20 million of annualised savings
per annum in each of the following two years.

The annualised year-to-date bad debt ratio was 1.0%, reflecting the resilient
credit quality of our loan book.

Group (central functions) reported an operating loss of £13.0 million in the
quarter (Q1 2025: £14.2 million), in line with the guidance provided at the
2025 preliminary results of an operating loss of c.£50 million in the 2026
financial year, reflecting a reduction in legal and professional fees.

Motor finance commissions

As previously announced, following the publication of the Financial Conduct
Authority ("FCA")'s consultation paper on 7 October 2025 on a proposed
industry-wide redress scheme in respect of motor finance commissions, we
updated our range of probability-weighted scenarios. This resulted in an
increase of c.£135 million in our provision, which has been recognised in the
first quarter, to a total provision of c.£300 million as at 31 October 2025,
which includes both redress and certain operational costs. This represents the
group's current best estimate based on all available information at this
stage. The ultimate cost to the group could be materially higher or lower than
the provision depending on the outcome of the consultation and any further
legal, regulatory or industry developments.

The group is committed to achieving a fair outcome for customers and providing
redress where loss has occurred. However, it does not believe the redress
methodology proposed by the FCA appropriately reflects actual customer loss or
achieves a proportionate outcome. In addition, the FCA's proposed approach to
assessing unfairness does not align with the legal clarity provided by the
Supreme Court judgement in respect of the "Johnson" case, which confirmed that
the test for unfairness is highly fact specific and must take into account a
broad range of factors.

We are continuing to engage with the FCA on the consultation, which is open
until 12 December 2025. The FCA expects to publish final rules for the redress
scheme in February or March 2026.

Strong balance sheet

We maintained a strong funding, liquidity and capital position during the
quarter. Our funding base remained broadly stable at £12.6 billion (31 July
2025: £12.7 billion). We maintained our prudent liquidity position, with a
12-month average liquidity coverage ratio ("LCR") of 1,119%, substantially
above regulatory requirements, as at 31 October 2025.

Our Common Equity Tier 1 ("CET1") capital and Total Capital ratios stood at
12.9% and 17.1% respectively at 31 October 2025 (31 July 2025: 13.8% and
17.8%). The decrease in the quarter was primarily driven by the additional
provision in respect of motor finance commissions. Taking into account the
estimated CET1 benefit from the sale of Winterflood(2), the pro-forma CET1
capital ratio as at 31 October 2025 would be c.13.4%, significantly above the
group's regulatory requirement of 9.7%.

Outlook

We have delivered a solid performance in the first quarter and the previously
communicated guidance for the 2026 financial year, as outlined at the 2025
preliminary results, remains unchanged.

 

Footnotes

1 The performance in the first quarter of the 2026 financial year relates to
continuing operations unless otherwise stated. Winterflood Securities
("Winterflood") is now classified as a discontinued operation following the
announcement on 25 July 2025 of an agreement to sell Winterflood to Marex
Group plc. Close Brothers Vehicle Hire is being exited, and related operating
lease assets are therefore excluded from the loan book totals.

2 The announced sale of Winterflood is expected to increase the group's CET1
capital ratio by c.55 basis points on a pro-forma basis as at 31 October 2025,
of which c.30 basis points will be recognised upon completion, with a further
c.25 basis points expected in due course from the reduction in operational
risk weighted assets.

Enquiries

Sophie Gillingham
Close Brothers Group
plc                              020 3857 6574

Camila
Sugimura                                 Close
Brothers Group plc
020 3857 6577

Sam
Cartwright
H/Advisors
Maitland
07827 254561

 

About Close Brothers

Close Brothers is a UK specialist banking group providing lending, deposit
taking and securities trading. We employ approximately 3,000 people,
principally in the United Kingdom and Ireland. Close Brothers Group plc is
listed on the London Stock Exchange and is a constituent of the FTSE 250.

Cautionary Statement

Certain statements included or incorporated by reference within this
announcement may constitute "forward-looking statements" in respect of the
group's operations, performance, prospects and/or financial condition. All
statements other than statements of historical fact are, or may be deemed to
be, forward-looking statements. Forward-looking statements are sometimes, but
not always, identified by their use of a date in the future or such words as
"anticipates", "aims", "due", "could", "may", "will", "should", "expects",
"believes", "intends", "plans", "potential", "targets", "goal" or "estimates".
By their nature, forward-looking statements involve a number of risks,
uncertainties and assumptions and actual results or events may differ
materially from those expressed or implied by those statements. There are also
a number of factors that could cause actual future operations, performance,
financial conditions, results or developments to differ materially from the
plans, goals and expectations expressed or implied by these forward-looking
statements and forecasts. These factors include, but are not limited to, those
contained in the group's annual report (available at:
https://www.closebrothers.com/investor-relations
(https://www.closebrothers.com/investor-relations) ). Accordingly, no
assurance can be given that any particular expectation will be met and
reliance should not be placed on any forward-looking statement. Additionally,
forward-looking statements regarding past trends or activities should not be
taken as a representation that such trends or activities will continue in the
future. Except as may be required by law or regulation, no responsibility or
obligation is accepted to update or revise any forward-looking statement
resulting from new information, future events or otherwise. Nothing in this
announcement should be construed as a profit forecast. Past performance cannot
be relied upon as a guide to future performance and persons needing advice
should consult an independent financial adviser. This announcement does not
constitute or form part of any offer or invitation to sell, or any
solicitation of any offer to subscribe for or purchase any shares or other
securities in the company or any of its group members, nor shall it or any
part of it or the fact of its distribution form the basis of, or be relied on
in connection with, any contract or commitment or investment decisions
relating thereto, nor does it constitute a recommendation regarding the shares
or other securities of the company or any of its group members. Statements in
this announcement reflect the knowledge and information available at the time
of its preparation. Liability arising from anything in this announcement shall
be governed by English law. Nothing in this announcement shall exclude any
liability under applicable laws that cannot be excluded in accordance with
such laws.

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