Close Brothers’ £122.4m loss explained: big provisions now, cleaner business later
Close Brothers Group has posted a statutory operating loss before tax of £122.4 million for the year to 31 July 2025, driven by hefty motor finance provisions and losses in rentals. Strip out the adjusting items, and adjusted operating profit came in at £144.3 million, showing the core bank is still profitable while management cleans house.
The bank has taken decisive action: selling non-core units, exiting a loss-making Vehicle Hire business, settling Novitas litigation, and building capital. That makes today’s numbers look messy, but the balance sheet is stronger, the group is simpler, and management is aiming for double-digit returns by the 2028 financial year.
Key numbers at a glance
| Metric | FY2025 | FY2024 | Change |
|---|---|---|---|
| Statutory operating (loss)/profit before tax | (£122.4m) | £132.7m | n/a |
| Adjusted operating profit (continuing) | £144.3m | £167.6m | (14%) |
| Profit from discontinued operations (after tax) | £49.2m | £5.1m | n/a |
| Loan book | £9.5bn | £9.8bn | (4%) |
| Net interest margin | 7.2% | 7.4% | – |
| Bad debt ratio | 1.0% | 1.0% | – |
| Expense/income ratio | 65% | 62% | – |
| CET1 ratio | 13.8% (c.14.3% pro forma) | 12.8% | – |
| Adjusted basic EPS (continuing) | 59.3p | 75.8p | – |
| Dividend per share | – | – | – |
Motor finance: provision steady, clarity improving, FCA still to come
The headline driver of the loss is motor finance. Close Brothers kept its £165.0 million provision relating to historical motor finance commission arrangements unchanged after reassessing the position post the Supreme Court judgment in August 2025. The judgment brought important legal clarity, but the FCA’s industry-wide redress scheme is still being consulted on, so uncertainty remains.
On top of that, the bank booked a separate £33.0 million provision for a proactive remediation programme linked to historical issues in early settlement processes, plus £18.7 million of complaints handling and related legal costs. Management is clear: the ultimate cost could be materially higher or lower than the current provision until the FCA sets the scheme’s scope and design.
Why it matters
- Provision risk is the biggest swing factor for equity holders. Clarity from the FCA is the main near-term catalyst for the shares and dividends.
- Operationally, motor lending has resumed, demand is firm, and processes have been beefed up. That supports the underlying business once the overhang is resolved.
Simplifying the group: disposals done, Vehicle Hire exit announced
Close Brothers has materially simplified its portfolio. It sold Close Brothers Asset Management in February 2025 and agreed the sale of Winterflood in July 2025 (completion expected early 2026). Profit from discontinued operations was £49.2 million, including a £60.8 million gain on the CBAM disposal, partly offset by a goodwill impairment at Winterflood as it moved to held for sale.
The group will exit the Vehicle Hire business after a challenging period and declining asset values. That triggered a £30.0 million impairment and contributed to total rentals losses before tax of £47.5 million. These are painful but tidy up non-core exposures.
Capital and liquidity are solid
- CET1 ratio is 13.8% or c.14.3% on a pro-forma basis including Winterflood, with headroom of c.410bps above applicable requirements.
- Over £400 million of CET1 has been generated or preserved since last year through actions including disposals and dividend suspension.
- Funding remains robust at £12.7 billion and liquidity is high, with a 12-month average LCR of 1,012%.
Banking performance: resilient margins, lower loan book, clean credit
The Banking division delivered adjusted operating profit of £198.3 million, with a strong net interest margin of 7.2% and a steady bad debt ratio at 1.0%. The loan book fell 4% to £9.5 billion, reflecting the temporary pause in UK motor lending in late 2024, deliberate moderation earlier in the year, and softer activity in a few markets in H2.
- Commercial: adjusted operating profit rose to £112.2 million, helped by Novitas settlements; excluding Novitas, profit was broadly flat.
- Retail: adjusted operating profit fell to £18.9 million as Motor and Premium Finance income declined and costs rose.
- Property: adjusted operating profit of £67.2 million, with higher impairments on a small number of developments, but a conservative book and strong repeat business.
Guidance flags that the net interest margin should be slightly below 7% in FY2026 due to mix effects, while the bad debt ratio is expected to remain below the 1.2% long-term average. In plain English: margins remain good, credit quality is sound, and growth can resume as demand and capital free up.
Costs: £25m savings banked, more to come
Cost control is a major lever. The group has delivered £25 million of annualised savings already and plans at least c.£20 million per year of additional savings in each of the next three years through simplification, central consolidation, selective outsourcing/offshoring, and tech automation (including AI).
- FY2026 adjusted operating expenses expected at £440-460 million, including c.£5-10 million of restructuring costs.
- By FY2028, adjusted operating expenses targeted in the £410-430 million range.
Execution is everything here. If management hits these milestones, operating leverage into any loan book recovery should be meaningful.
Dividends and outlook: patience required, path to double-digit returns
No final dividend for FY2025, and the board will review reinstatement once there is clarity on the FCA review’s financial impact. Management is targeting a return to double-digit RoTE by the 2028 financial year, with a fuller update planned once the FCA consultation outcome is known.
What to watch next
- FCA consultation outcome on motor finance redress – this is the key derisking event.
- Completion of the Winterflood sale and pro-forma CET1 benefits.
- Delivery of the cost programme and Group central functions loss trending to c.£50 million in FY2026.
- Loan book growth re-acceleration across Property, Commercial adjacencies (e.g. commercial mortgages, agriculture) and Motor Finance Ireland.
- Complaints handling and legal costs in motor commissions guided to single-digit millions in FY2026.
Josh’s take: a cleaner, more focused Close Brothers with one big caveat
This is a tough set of statutory numbers, but beneath the noise the picture is improving. Capital and liquidity are strong, core margins are attractive, credit remains under control, and the business is simpler after bold portfolio moves. Management has a credible cost plan and a clear SME specialist strategy.
The caveat is obvious: until the FCA redress scheme is clarified, there is a valuation and dividend overhang. The £165.0 million provision may prove sufficient or not – the company is open that outcomes could be materially different. If the FCA lands within expectations and costs fall as guided, the route to double-digit returns looks realistic. If not, the destination takes longer.
For investors, this is now a story about execution and clarity. Deliver the savings, grow the loan book sensibly when the economy and demand recover, and get the FCA chapter closed. Do that, and today’s pain looks like a necessary reset on the way back to a healthier, more focused Close Brothers.
