Close Brothers FY26 Results: Cost Savings Rise but Motor Finance Provision Keeps Dividend Suspended

Close Brothers has delivered a mixed set of full-year results. The specialist bank is cutting costs faster than planned, its capital position remains strong and lending growth improved during the second half.

However, underlying profitability moved backwards, the group remained loss-making on a statutory basis and uncertainty surrounding motor finance redress means shareholders will receive no final dividend.

The central question for investors is whether Close Brothers can turn its restructuring progress into stronger returns while containing the financial impact of the motor finance issue.

Close Brothers' key FY26 figures

Metric	FY26	FY25	Change
Adjusted operating profit	£120.3 million	£144.3 million	Down 17%
Statutory operating loss before tax	£60.3 million	£122.4 million	Loss reduced 51%
Adjusted operating income	£642.9 million	£681.2 million	Down 6%
Adjusted operating expenses	£430.9 million	£445.1 million	Down 3%
Loan book	£9.5 billion	£9.5 billion	Flat
Net interest margin	6.9%	7.2%	Down 0.3 percentage points
Bad debt ratio	1.0%	1.0%	Flat
Return on average tangible equity	5.5%	7.1%	Down 1.6 percentage points
CET1 capital ratio	14.1%	13.8%	Up 0.3 percentage points
Ordinary dividend per share	Nil	Nil	No change

Adjusted operating profit excludes items that management does not consider representative of underlying trading, including motor finance provisions and restructuring costs. On that measure, profit fell 17% to £120.3 million as income declined faster than costs.

The statutory result remained a loss, although the pre-tax deficit improved from £122.4 million to £60.3 million. Adjusting items totalled £180.6 million, dominated by the additional motor finance commission provision.

Investors can read the original company announcement for the complete preliminary results.

Cost savings are the clearest positive

Close Brothers delivered approximately £36 million of annualised cost savings during FY26, comfortably ahead of its latest target of approximately £25 million.

Adjusted operating expenses fell 3% to £430.9 million, which was also better than the company's guidance of around £450 million. Savings came from lower staff and adviser costs, offshoring, reduced third-party spending and a smaller property footprint.

Management has now raised its ambition and expects annualised savings to exceed £60 million by the end of FY27. Adjusted operating expenses are expected to remain around £430 million in FY27, with savings broadly offsetting inflation and selective investment in growth.

That is encouraging, but there is an important catch. The expense-to-income ratio worsened from 65% to 67% because income fell by 6%. Cost-cutting alone will not deliver the targeted improvement in returns if revenue remains under pressure.

Close Brothers also expects restructuring costs of approximately £30 million to £40 million in FY27. Those costs should support future efficiencies, but they represent another near-term drag on the statutory result.

Lending growth improved in the second half

The reported loan book was flat at £9.5 billion. On an underlying basis, excluding the planned reduction in selected Premium Finance personal lines relationships and the run-off of legacy Irish motor finance lending, it grew 2% over the year and 4% in the second half.

All divisions produced loan book growth in the final quarter. Commercial lending increased 3%, including 8% growth in Invoice Finance, while Motor Finance grew 9%. These gains were offset by a 26% decline in Premium Finance and a 5% reduction in Property.

Management expects underlying loan book growth of 5% to 10% in FY27, subject to market conditions. The remaining Premium Finance exit portfolio is expected to reduce reported growth by approximately one percentage point, or around £100 million.

The quality of growth will matter as much as its pace. Close Brothers noted a shift towards larger transactions that typically carry lower margins but offer strong credit quality and attractive risk-adjusted returns.

Net interest margin, the difference between lending income and funding costs relative to the loan book, fell from 7.2% to 6.9%. Management expects it to be slightly lower again in FY27, including an approximately 0.1 percentage point impact from business mix.

Motor finance remains the major uncertainty

Close Brothers added £164.7 million to its provision for motor finance commissions during FY26, taking the total to approximately £320 million. The provision stood at £318.5 million at 31 July after cost utilisation and the unwinding of the time-value discount.

The group said the ultimate cost remains dependent on legal challenges to the Financial Conduct Authority's consumer redress scheme and any further legal, regulatory or industry developments.

This uncertainty has two direct consequences for shareholders. First, it is responsible for much of the gap between the £120.3 million adjusted operating profit and the £60.3 million statutory loss. Second, the board will not pay a final dividend for FY26.

Management remains committed to restarting shareholder distributions at an appropriate time, but no timetable has been disclosed. It will reassess the position when there is greater certainty over motor finance commissions, alongside the group's capital needs and shareholder feedback.

This follows the issues discussed in my coverage of the Close Brothers H1 2026 results and the group's previous motor finance provisions.

Capital provides a useful buffer

The Common Equity Tier 1, or CET1, ratio increased from 13.8% to 14.1%. CET1 is a key measure of a bank's highest-quality capital relative to its risk-weighted assets.

That is above Close Brothers' medium-term target range of 12% to 13% and includes the effect of the motor finance provision. The group also reported around 380 basis points of CET1 headroom over its applicable regulatory requirement.

Basel 3.1 banking rules are expected to reduce the ratio by approximately 80 basis points when implemented on 1 January 2027. On a pro-forma basis, the year-end CET1 ratio would fall to 13.3%, while the minimum requirement would reduce to 9.9%.

This capital position gives Close Brothers room to absorb regulatory changes and fund loan growth. However, management expects the ratio to move into the 12% to 13% target range after Basel 3.1 and growth, reducing some of today's surplus.

Can Close Brothers rebuild returns by FY28?

Return on average tangible equity, or RoTE, fell from 7.1% to 5.5%. This measures adjusted profit against the tangible shareholder capital used by the business and remains well below management's ambitions.

Close Brothers expects only a modest RoTE improvement in FY27. It continues to target double-digit RoTE by FY28, supported by loan growth, lower costs and an expense-to-income ratio below 60%.

The strategic direction is clear. The group has sold Winterflood and Close Brewery Rentals, is winding down Vehicle Hire and is refocusing Premium Finance towards commercial customers. It is becoming a simpler specialist lender with fewer non-core operations.

Execution now needs to show up in the numbers. Investors following Close Brothers Group PLC should watch whether loan growth reaches the 5% to 10% target, whether expenses remain controlled and whether income stabilises despite further margin pressure.

Above all, clarity on motor finance redress is needed before the statutory result and dividend can properly recover. FY26 shows meaningful operational progress, but it does not yet show that Close Brothers has completed its financial rehabilitation.