Close Brothers halves losses despite £165m finance hit

Close Brothers reported a pre‑tax operating loss of £60.3 million for the year to 31 July 2026, down from a £122.4 million loss the previous year, despite a further £164.7 million provision for the FCA motor‑finance redress scheme. The result highlights that underlying lending returned to growth, a factor that could restore profitability for dealers relying on specialist finance.

Key takeaways

• Pre‑tax loss fell to £60.3 million, halving the previous year’s figure.
• A £164.7 million provision raised total redress provision to roughly £320 million.
• Underlying lending grew 2% annually, with 4% growth in the final six months.
• Cost base reduced by £36 million, exceeding the £25 million target.
• No final dividend was declared for 2026 due to FCA scheme uncertainty.

Financial performance and loss reduction

The group posted a pre‑tax operating loss of £60.3 million for the year to 31 July 2026, compared with a £122.4 million loss in 2024‑25. Underlying operating profit reached £120.3 million, and chief executive Mike Morgan said the business would have been profitable without the motor‑finance provisions.

Morgan added that, assuming no further redress provisions, Close Brothers expects to return to profit in the 2026‑27 financial year. The bank’s outlook hinges on the resolution of the FCA’s compensation scheme and the associated financial impact.

Motor‑finance compensation scheme impact

The latest provision of £164.7 million brings the total amount set aside for possible motor‑finance redress to around £320 million. The FCA had paused payouts earlier in the year as the scheme faced legal challenges, adding further uncertainty for the lender.

Because of this uncertainty, Close Brothers announced it would not pay a final dividend for 2026. The decision reflects concerns over the outcome of legal challenges to the FCA’s consumer redress scheme and any further financial impact that may arise.

Cost reduction and restructuring

The bank removed approximately £36 million from its annual cost base, surpassing the original £25 million target. Close Brothers now expects cumulative annual savings exceeding £60 million by the end of July 2027, reflecting an accelerated cost‑efficiency programme.

In March the group announced 600 job cuts, with around 200 roles eliminated during the year and the remaining 400 slated for the next twelve months. Some call‑centre positions will be transferred to South Africa as part of the restructuring.

Share price reaction and analyst view

Close Brothers shares rose 12 percent after the results were released, reflecting investor optimism about the loss reduction and cost‑saving measures. Shore Capital analyst Gary Greenwood highlighted the acceleration in lending during the latter half of the year as particularly encouraging.

The bank’s focus on specialist lending markets and AI deployment aims to improve margins, a development that could benefit dealer financing arrangements if credit conditions remain stable.

What this means for dealers

Dealers should monitor the progress of the FCA redress scheme, as any additional provisions could affect Close Brothers’ capacity to extend finance. The bank’s cost cuts and restructuring suggest a tighter operational focus, potentially stabilising its lending appetite.

If the firm returns to profitability in 2026‑27 as projected, it may resume dividend payments and increase the availability of specialist financing products, offering dealers improved terms and confidence in long‑term partnership with the lender.

Frequently asked questions

What is the total provision Close Brothers has set aside for the motor‑finance redress scheme?

Close Brothers has earmarked around £320 million for potential redress, including the recent £164.7 million provision announced for the year to 31 July 2026. This figure reflects the bank’s response to the FCA’s proposed compensation scheme and the associated legal challenges.

How have cost‑cutting measures impacted Close Brothers’ expenses?

The lender removed roughly £36 million from its annual cost base in the year to 31 July 2026, beating an initial £25 million target. It now aims for total annual savings of more than £60 million by the end of July 2027.

Will Close Brothers resume dividend payments in the near future?

The bank announced no final dividend for 2026 due to uncertainty surrounding the FCA’s redress scheme. Management indicated that, if no further provisions are required, dividend payments could be reinstated once profitability returns, likely from the 2026‑27 financial year onward.