Close Brothers to cut almost quarter of workforce in wake of car finance scandal

Around 600 jobs are being axed at Close Brothers as the banking group ramps up cost cutting after posting further losses in the face of a mounting compensation bill for the motor finance scandal.

The firm said the cuts – nearly a quarter of its 2,600-strong workforce – would be made over the next 18 months across its teams in the UK and Ireland.

It comes as part of efforts to slash costs by about £25 million in its current year to the end of September, up from a £20 million previous target, and by around another £60 million in the next financial year, which is a year earlier than planned.

The cuts will come from actions including moves to outsource and offshore work, cut back its office network and roll out the use of artificial intelligence (AI) “at pace”.

Chief executive Mike Morgan said: “While the impact on affected colleagues is regrettable, these actions are necessary to structurally lower our cost base, while increasing our agility and ability to serve our customers.”

Close Brothers revealed the jobs cull as it reported pre-tax operating losses of £65.5 million for the six months to March 31 after setting aside another £135 million for the car loans mis-selling saga.

But this marked an improvement on the £102.2 million in losses reported a year earlier.

The extra provision made last October saw it nearly double the amount of cash set aside for the car finance compensation scheme, adding to its existing £165 million provision.

This means it is expecting to face a bill of about £300 million to cover costs relating to the issue and comes after the Financial Conduct Authority (FCA) published the details of its proposed compensation scheme for drivers who sold car loans with hidden or unfair commission payments.

The FCA will set out its final plans for the redress scheme by the end of this month, but has faced pushback from lenders including Close Brothers, Santander and Lloyds Banking Group over the regulator’s calculations for how much consumers lost out and should be compensated.

Close Brothers saw shares slump 14% on Monday after a short seller, Viceroy Research, claimed Close Brothers would have to at least double its £300 million provision for car finance.

Viceroy said Close Brothers had “substantially misrepresented” its exposure to the FCA’s redress scheme.

Close Brothers said it “strongly disagrees with the report” in a statement after market close on Monday.

The firm has been trimming costs and boosting its capital strength ahead of the compensation bill, agreeing sales of its Winterflood arm and asset management businesses.