Close Brothers Group (LON:CBG) used its 2026 first-half results presentation and business update to highlight what management described as resilient underlying performance, a strengthened capital position, and an accelerated transformation program aimed at lowering costs and rebuilding returns to “double-digit” return on tangible equity (ROTE) by 2028.
Management response to Viceroy report and regulatory backdrop
Chief Executive Mike Morgan opened the call by addressing a research report published by Viceroy Research focused on the group’s provisioning for motor finance commissions and the potential capital impact. Morgan said Close Brothers “strongly disagrees” with the report and stated that the group’s provisioning approach is in accordance with UK-adopted international accounting standards and follows a “robust governance process.” In response to analyst questions, Morgan declined to comment on individual figures in the report but reiterated the company’s disagreement with its conclusions.
First-half financial performance and dividends
MacCarthy reported adjusted operating profit of GBP 65.2 million for the first half of fiscal 2026 and a 6.3% return on average tangible equity. Adjusted operating profit across the commercial, retail, and property divisions totaled GBP 88 million, while the adjusted operating loss in group central functions narrowed to GBP 22.8 million, which management attributed to lower legal and professional fees and higher interest on group cash balances.
Adjusted operating income fell 6% to GBP 327 million, reflecting a lower average loan book, market conditions, and repositioning actions including the wind down of Novitas and a planned reduction in premium finance personal lines. Adjusted operating expenses were “broadly flat” at GBP 222 million, and impairment charges fell 16% to GBP 40 million, helped by an updated IFRS 9 model in motor finance, partly offset by higher individually assessed provisions in property.
On a statutory basis (including discontinued operations), Close Brothers recorded a GBP 64.4 million loss after tax, which MacCarthy said was largely driven by the motor finance commission provision. The company will not pay an interim dividend for fiscal 2026, reiterating that dividends will be reviewed once there is more clarity on the potential financial impact of the FCA’s review.
Motor finance commission provision and capital position
MacCarthy said the company booked an additional GBP 135 million provision related to motor finance commissions in the half, bringing the total provision to GBP 300 million. Despite this, the group’s CET1 ratio increased 50 basis points to 14.3%, which management attributed to factors including reduced loan book risk-weighted assets (RWAs), profits attributable to shareholders, and the sale of Winterflood. The group’s minimum requirement was cited as 9.7%.
The group also reported a 13.5% leverage ratio. Looking ahead to Basel 3.1, management said it expects the change (effective Jan. 1, 2027) to increase RWAs by less than 10%, with an expected full offset in Pillar 2A requirements for removal of the SME supporting factor, implying no significant impact on overall capital headroom.
After the period end, the group issued GBP 250 million of Tier 2 notes accompanied by a related tender, which management said demonstrated market access.
Loan book trends, margins, and credit quality
The loan book declined 2% in the half, which management said reflected market conditions and repositioning. Excluding the planned reduction in premium finance personal lines and the Republic of Ireland motor finance business in run-off, the loan book decreased 1%. The group reported a 7.1% net interest margin (NIM) and a bad debt ratio of 80 basis points, with provision coverage unchanged at 2.6%. MacCarthy said management expects NIM to be “slightly lower than 7%” for the full year due to loan book mix changes.
By division:
- Commercial: Adjusted operating profit fell to GBP 40.7 million. Income decreased to GBP 151.2 million, and impairment rose to GBP 16.5 million with a bad debt ratio of 70 basis points. Asset finance grew 2%, while invoice finance contracted due to “amplified seasonality” at the end of January.
- Retail: Adjusted operating profit increased to GBP 17.5 million. Income fell 8% to GBP 118.4 million, while expenses rose 4% to GBP 92.7 million due to scaling motor finance in Ireland and investment spending. Impairment fell to GBP 8.2 million, and the bad debt ratio improved to 60 basis points.
- Property: Adjusted operating profit declined to GBP 29.8 million. Income fell 10% to GBP 61.6 million and impairment rose to GBP 14.8 million (bad debt ratio 1.6%), reflecting higher provisions on a small number of developments amid build cost inflation and subdued sales markets. The loan book fell 5% to GBP 1.8 billion.
Transformation program: accelerated cost targets and headcount reductions
Management emphasized a transformation and cost program aimed at reducing complexity and reshaping the group’s historically “federated” operating model. Morgan said the company now expects to deliver GBP 25 million of annualized savings in fiscal 2026 (ahead of a prior GBP 20 million target) and expects to deliver GBP 60 million of annualized cost savings by the end of fiscal 2027, one year earlier than previously guided.
As part of the operating model changes, the company expects to reduce headcount by around 600 across business units and central functions, reaching around 2,000 FTEs by fiscal 2028. Morgan said the group will increase the use of outsourcing and offshoring, while also expanding automation and AI to reduce manual processes. Executives cited early AI use cases including complaints management, fraud detection, and quality assurance of outsource partners, and said 160 employees have been enrolled in an AI apprenticeship scheme.
MacCarthy guided to group adjusted operating expenses of around GBP 450 million in fiscal 2026 and GBP 410 million to GBP 430 million by fiscal 2028, with an expense-to-income ratio targeted to fall below 60% by 2028. She said the group has not disclosed a detailed split of savings between staff and non-staff costs, but noted that headcount reductions imply a meaningful staff-cost component while also highlighting efforts to reduce legal and professional fees and consolidate supplier spend.
About Close Brothers Group (LON:CBG)
Close Brothers Group plc, a merchant banking company, engages in the provision of financial services to small businesses and individuals in the United Kingdom. It operates through five segments: Commercial, Retail, Property, Asset Management, and Securities. The company offers banking services comprising of debt factoring, invoice discounting, asset-based lending; financing for SMEs, residential housing, transport, industrial equipment, renewable energy, motorcycle, used car, and commercial vehicle financing; insurance, refurbishment, and bridging financing, savings products for individuals and corporates, hire purchase, lease, and loan related services.
