(Alliance News) - Close Brothers PLC on Tuesday warned of near-term margin pressures as it reported first-half results scarred by the impact of a provision in relation to motor finance commissions.
The London-based bank, broker and asset manager reported an operating pretax loss of GBP103.8 million in the six months to January 31 swung from a pretax profit of GBP87.0 million a year prior.
This was primarily driven by a GBP165 million provision in relation to motor finance commissions, announced in February, as well as the impact of complaints handling and other operational and legal costs incurred in relation to motor finance commissions.
In response, shares in Close Brothers plunged 18% to 283.80 pence each in London on Tuesday.
In April, the Supreme Court is due to hear an appeal brought by car loan providers, including Close Brothers, challenging a ruling from the Court of Appeal that sided with consumers who complained about "secret" commissions on car loans.
Close Brothers said its goal is to ensure that, once the motor finance commissions uncertainty has been resolved, the group is "well positioned to generate strong, sustainable returns".
The company said the reinstatement of dividends will be reviewed once there is further clarity on the financial impact of motor finance commission arrangements and the Supreme Court appeals.
On an adjusted basis operating profit fell 18% to GBP72.3 million from GBP87.9 million. Operating income reduced 1.1% to GBP390.0 million from GBP394.5 million a year ago, with a marginal decline in Banking and lower interest income in Group central functions more than offsetting higher income in Winterflood.
Close Brothers said its common equity tier 1 ratio fell to 12.2% at January 31 compared with 13.4% at July 31, despite the impact of the provision.
The return on average tangible equity 7.4% compared to 9.9% while the net interest margin fell to 7.3% from 7.5%.
In Banking, the firm said it is encouraged by the robust underlying profit performance delivered in the first half and it plans to resume selective loan book growth, with modest growth expected in the second half of the 2025 financial year.
Full-year net interest margin is seen around 7%, slightly below the first half exit rate of 7.1%, reflecting "temporary factors" and "competitive new business margins".
The company said it has made "significant" progress on implementing cost initiatives, with an additional GBP5 million of annualised savings now expected to be delivered. This increases the estimated total annualised savings to GBP25 million by the end of the current financial year, up from GBP20 million previously.
In addition, it continues to evaluate a range of additional potential management actions to further optimise risk weighted assets, including potential risk transfer of assets in Motor Finance and other portfolios.
By Jeremy Cutler, Alliance News reporter
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