Close Brothers Bank Plans Job Cuts Amid Financial Struggles
Close Brothers, a banking group, is looking to eliminate approximately 600 jobs as it plans to accelerate the incorporation of AI technology, following a rise in losses related to compensation claims from a car finance scandal.
The company, which has a workforce of about 2,600 in the UK and Ireland, will reduce its staff by nearly a quarter over the next 18 months.
In terms of financial strategy, it aims to save around £25 million this current financial year, ending in September, which is an increase from the earlier goal of £20 million. For the next financial year, the target rises to an additional £60 million, moving this goal up a year ahead of previous projections.
Job reductions will come through outsourcing operations and minimizing the company’s “asset footprint.” Close Brothers stated, “We’re also speeding up the adoption of automation and artificial intelligence, which will help lower costs and enhance customer experience.”
Mike Morgan, the CEO, expressed some regret over the layoffs but emphasized the necessity of these actions for improving agility and customer service while reducing costs structurally.
Founded in 1878 by William Brooks Close and his brothers, the firm reported a pre-tax operating loss of £65.5 million for the half-year ending March 31. This was attributed to compensation claims totaling £135 million linked to issues with mis-sold car loans. Although this represents an improvement from the previous year’s £102.2 million loss, it’s still significant.
Further provisions made in the past year have nearly doubled their cash reserves for the Motor Finance Protection Scheme, in addition to an existing £165 million allocation. It’s anticipated that the total claim might approach £300 million in light of the Financial Conduct Authority (FCA) announcing a compensation scheme for vehicle loans that included hidden or unfair charges.
The FCA is scheduled to release a final outline for this compensation process by the end of the month. However, some financial institutions, including Close Brothers, Santander, and Lloyds Banking Group, have expressed concerns regarding the amounts proposed for consumer compensation.
Close Brothers’ shares took a hit, dropping 14% on Monday after short seller Viceroy Research claimed the company needed to significantly increase its provision for motor finance. Following this, the bank stated it “strongly disagrees with the report,” but its shares fell an additional 5% in early trading on Tuesday.
Prior to these compensation issues, the company had already been scaling back and enhancing its capital, including the sale of its Winterflood division and asset management business.
