The banking group Close Brothers is to cut about 600 jobs and roll out the use of AI “at pace” after posting further losses in the face of a mounting compensation bill for the motor finance scandal.
The specialist lender said the cuts – nearly a quarter of its 2,600-strong workforce – would be made over the next 18 months across its teams in the UK and Ireland.
It aims to reduce costs by about £25m in its current financial year to the end of September, up from a previous target of £20m, and by around another £60m in the next financial year, a year earlier than planned.
It said it would make the cuts through outsourcing and offshoring work and reducing its “property footprint”. “In parallel, we are progressing the deployment of automation and artificial intelligence at pace, providing further opportunity both to reduce costs and enhance customer experience,” it said.
The chief executive, Mike Morgan, said: “While the impact on affected colleagues is regrettable, these actions are necessary to structurally lower 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 the jobs cull as it reported pre-tax operating losses of £65.5m for the six months to 31 March after setting aside another £135m for the car loans mis-selling saga. This marked an improvement on the £102.2m in losses reported a year earlier.
The extra provision made last October led to it nearly doubling the amount of cash set aside for the car finance compensation scheme, adding to its existing £165m provision.
This means it is expecting to face a bill of about £300m to cover costs relating to the issue and comes after the Financial Conduct Authority (FCA) published the details of its proposed compensation scheme for drivers who were sold car loans with hidden or unfair commission payments.
The FCA will set out its final plans for the redress scheme by the end of this month and has faced pushback from lenders including Close Brothers, Santander and Lloyds Banking Group over its calculations for how much consumers lost out and should be compensated.
Close Brothers’ shares slumped 14% on Monday after a short seller, Viceroy Research, claimed the lender would have to at least double its £300m provision for car finance.
Viceroy said Close Brothers had “substantially misrepresented” its exposure to the FCA’s redress scheme. Close Brothers said it “strongly disagrees with the report” in a statement after market close on Monday. Its shares fell a further 5% in early trading on Tuesday morning.
The company has been trimming costs and increasing its capital before the compensation bill, agreeing sales of its Winterflood arm and asset management businesses.
