Close Brothers warns of higher full-year costs

The FTSE 250 company said that in the banking division, the loan book increased 1.5% during the quarter and 5.4% in the year-to-date, reaching £10bn.

Excluding Novitas and the legacy Irish motor finance business, which was in run-off, growth was 6.4%.

That was driven by strong customer demand in property and continued expansion in the UK motor finance and invoice finance loan books, despite seasonal reductions in premium finance and stabilisation in asset finance.

The recently-acquired motor finance business in the Republic of Ireland performed well, with steady growth in new business volumes.

Close Brothers said its annualised year-to-date net interest margin (NIM) was 7.4%, slightly down from 7.5% in the first half, reflecting higher interest rate environments and lower fees.

The group said it expected the NIM to remain broadly stable for the rest of the year.

Banking costs were anticipated to grow by 8% to 10% for the full year, excluding the costs related to the Irish motor finance business, which were expected to be around £7m.

Additionally, Close Brothers said it expected to incur £10m in costs associated with handling complaints in the motor finance business regarding historical discretionary commission arrangements.

The annualised year-to-date bad debt ratio remained stable at 0.9%, and the group said it expected the ratio to stay below the long-term average of 1.2% for the full year, given current market conditions.

Close Brothers said it was conducting a past business review of customer forbearance related to its motor finance lending, expected to conclude by the end of 2024, with potential customer compensation costs estimated to be in the single-digit millions.

Close Brothers Asset Management (CBAM) continued to deliver strong performance with annualised net inflows of 9% for the year-to-date.

Managed assets increased to £18.5bn, and total assets rose to £19.6bn, driven by net inflows and positive market movements.

Winterflood, the group's securities trading arm, experienced a marginal improvement in trading conditions during the quarter, resulting in an operating profit of £1.7m.

That followed an operating loss of £2.6m in the first half.

Close Brothers Group said its central functions saw net expenses of £11.6m for the quarter.

The group said it anticipated higher net expenses for the rest of the 2024 financial year, primarily due to increased professional fees and costs associated with the FCA's review of historical motor finance commission arrangements.

Close Brothers said it maintained a strong balance sheet, with a diverse funding base increasing to £13.1bn and customer deposits growing 6% to £8.8bn.

The group's liquidity coverage ratio remained substantially above regulatory requirements.

Common Equity Tier 1 (CET1) capital and total capital ratios were 12.9% and 16.6%, respectively, as of 30 April, slightly down from January due to loan book growth offsetting retained profit.

Looking ahead, Close Brothers said it was optimistic about the strength of customer demand in its banking division, adding that it was committed to maintaining pricing discipline while managing costs.

In CBAM, the focus would be on consolidating its position and maximising profitability opportunities.

Winterflood was meanwhile positioned to benefit when investor appetite returns.

“Performance in the third quarter reflected continued loan book growth, strong margins and resilient credit quality in banking,” said chief executive officer Adrian Sainsbury.

“Notwithstanding moderation in some of our businesses, due to seasonality and selective loan book actions we identified at the half-year 2024 results, we are encouraged by the ongoing strength in overall customer demand and continue to focus on providing excellent service to our customers.

“CBAM delivered strong net inflows and Winterflood's performance benefited from marginally improved market conditions in the quarter.”

Sainsbury said that while the company was working through a period of uncertainty, it was committed to executing its strategy and protecting its “valuable franchise”.

“We are making good progress against the actions previously outlined to further strengthen our capital position and are focussed on positioning the group to resume our track record of earnings growth and attractive returns.”

At 0842 BST, shares in Close Brothers Group were down 6.31% at 460p.

Reporting by Josh White for Sharecast.com.