Close Brothers banking group to cut 600 jobs amid cost of car finance scandal | Banking
Banking group Close Brothers will cut nearly 600 jobs and “rapidly” introduce the use of artificial intelligence after announcing further losses in the face of a mounting compensation bill over the motor finance scandal.
The specialist lender said the cuts, which account for almost a quarter of its 2,600-strong workforce, will be made across its teams in the UK and Ireland over the next 18 months.
The company aims to cut costs by around £25 million by the end of September, from a previous target of £20 million, a year earlier than planned, and by around £60 million in the next financial year.
It said it would make cuts and reduce its “ownership footprint” through outsourcing and offshoring efforts. “In parallel, we are rapidly advancing the deployment of automation and artificial intelligence, providing more opportunities to both reduce costs and improve customer experience,” he said.
Chief Executive Mike Morgan said: “While the impact on our affected colleagues is distressing, these actions are necessary to structurally reduce our cost base while increasing our agility and ability to serve our customers.”
Close Brothers, founded in 1878 by William Brooks Close and his brothers Fred and James, revealed business losses, reporting a pre-tax operating loss of £65.5 million for the six months to March 31 after forking out a further £135 million for the car loans mis-selling saga. This marked an improvement on the £102.2 million loss reported a year earlier.
The extra provision made last October almost doubled the amount of cash set aside for the car finance compensation scheme, adding to its existing provision of £165 million.
It means it will face a bill of around £300 million to cover costs related to the matter and comes after the Financial Conduct Authority (FCA) published details of its proposed compensation scheme for drivers sold car loans with hidden or unfair commission payments.
The FCA will announce its final plans for the remediation scheme by the end of this month and has pushed back from lenders such as Close Brothers, Santander and Lloyds Banking Group on its calculations of how much losses consumers have suffered and need to be compensated.
Shares in Close Brothers tumbled 14% on Monday after short seller Viceroy Research claimed the lender would have to at least double its £300 million provision for car finance.
Viceroy said Close Brothers had “grossly misrepresented” its exposure to the FCA’s compensation scheme. Close Brothers said in a statement after Monday’s market close that it “strongly disagrees with the report.” Its shares fell another 5% in early trading Tuesday morning.
The company is cutting costs and raising capital ahead of the compensation bill, agreeing to sell its Winterflood arm and asset management businesses.
