Close Brothers Announces Major Job Cuts Amid Car Finance Scandal Controversy
Close Brothers, a prominent merchant bank, has revealed plans to eliminate 600 positions, representing nearly a quarter of its workforce, as it grapples with the financial repercussions of the car finance mis-selling scandal. This decision follows sharp criticism from short-seller Viceroy Research, which alleges the bank has underestimated its exposure to potential compensation payouts.
Market Turmoil and Short-Seller Allegations
Shares in Close Brothers plummeted by 14 per cent on Monday after Viceroy Research, known for its scrutiny of firms like Wirecard and Home Reit, issued a damning report. The short-seller claims that Close Brothers has systematically misrepresented its liability in the scandal, suggesting the bank may need to pay between £572 million and £1.23 billion—far exceeding its current provision of £300 million. At the higher estimate, this sum would surpass the company's entire market value, raising concerns among investors and regulators alike.
Broader Industry Impact and Regulatory Framework
The car finance scandal, estimated to cost the sector up to £10 billion, involves undisclosed commissions paid to salespeople, affecting millions of consumers. The Financial Conduct Authority (FCA) has identified around 14 million unfair car finance deals, with average redress of £700 per case, as outlined in a recent 360-page consultation document. Lloyds Bank, with the largest exposure among financial institutions, could face payouts of £2 billion, though it has contested the FCA's calculation methods. Close Brothers has strongly disputed Viceroy's conclusions, asserting that its provisioning adheres to UK-adopted international accounting standards and robust governance processes.
Strategic Cost-Cutting Measures and Workforce Reduction
In response to mounting pressures, Close Brothers is implementing aggressive cost-reduction strategies. The job cuts, affecting teams across the UK and Ireland over the next 18 months, are part of a plan to save approximately £25 million in the current fiscal year ending September, up from an initial target of £20 million. An additional £60 million in savings is targeted for the following financial year, accelerated by one year. These measures include outsourcing and offshoring work, reducing office networks, and rapidly deploying artificial intelligence (AI) to enhance efficiency.
Leadership Response and Future Outlook
Chief executive Mike Morgan expressed regret over the impact on employees but emphasized the necessity of these actions to structurally lower the cost base and improve agility in customer service. As shares in Close Brothers edged up slightly to 360p today, the bank faces ongoing scrutiny from market analysts and regulatory bodies. The situation underscores the broader challenges within the car finance industry, where transparency and consumer protection remain critical issues moving forward.
