Close Brothers (LSE:CBG) reported a pre-tax loss for the year to July and paid no final dividend, as it absorbed a £320m provision for the regulator's car finance redress scheme and turned its attention to growth.

Close Brothers Group (LSE:CBG), the merchant banking group, closed a turbulent financial year with its Capital position intact but its Dividend still suspended. In preliminary results published on 29 September, the lender reported a pre-tax operating loss of £60.3m for the 12 months to 31 July 2026, narrower than the £122.4m loss a year earlier. The improvement was attributed to cost savings, with £36m of annualised savings achieved ahead of schedule.

The dominant theme remained the motor finance commissions scandal. The group's provision for the Financial Conduct Authority's consumer redress scheme stood at £320m. No final dividend was declared for the year. The Loan book held at £9.5bn, with underlying growth returning in the second half of the year and all divisions expanding in the final quarter.

The CET1 capital ratio stood at 14.1%, which compares with the group's medium-term target range of 12% to 13%. The company has described that buffer as providing room for regulatory change and for growth, and said it was confident of meeting a 5% to 10% annual growth target.

About the company

Close Brothers Group is a UK merchant banking group that lends to small and medium-sized businesses and individuals, and provides specialist advice and Investment services. It operates through three main divisions. Banking is by far the largest and makes secured and asset-backed loans, including motor finance, premium finance, property finance and lending against invoices and equipment. Asset Management provides Wealth advice and investment management through Close Brothers Asset Management. Winterflood Securities acts as a market maker in London-listed shares.

The model is built around relationship-led, secured lending in niche markets where the group can price for expertise and for the risk it takes, rather than competing on Volume in mainstream products. Most of the income is net interest income, being the gap between what the bank charges borrowers and what it pays on deposits, supplemented by fees from advice and trading. The loan book of £9.5bn reported in the article is therefore the main driver of earnings, alongside bad Debt charges, operating costs and the capital the bank must hold against its lending.

The financial picture for the year to July 2026 is dominated by the regulatory provision. A pre-tax operating loss of £60.3m, an improvement on the previous year, and the absence of a final dividend show how a single legacy issue can overshadow the underlying Earnings of a Business that has historically been consistently profitable. The capital ratio of 14.1% and the £36m of annualised savings give the group some room while it works through redress payments and returns to growth.

How the redress bill took shape

The final estimate has moved through several stages during 2026. On 8 April the company put the estimated cost of the scheme as published at about £320m, comprising the cost of paying qualifying customers and delivering the programme. At that stage it held an existing provision of £294m. The company estimated that around 720,000 loans qualified for redress, with an average payment of about £500 per customer against an industry average of £829, and an assumed claim rate of 75%. A movement of five percentage points in that claim rate would alter the estimate by about £18m.

The shares reacted positively at the time, as the figure eased market fears about the potential scale of the liability. In late April, Close Brothers (LSE:CBG) said it would not challenge the regulator's scheme, and in its third-quarter update on 21 May it confirmed that the provision had increased to £320m after a charge of £30m in the quarter.

Roll-out of the scheme is scheduled to run from summer 2026 until the end of 2027, meaning that cash payments will continue to pass through the business during the current financial year.

Motor finance and the wider lending sector

Motor finance became a major regulatory issue for UK lenders after questions arose about commissions paid to car dealers and brokers, and whether customers were given sufficient information. The regulator's redress scheme is intended to settle the matter on an industry-wide basis, which is why the figures in the article are expressed as estimates of the number of qualifying loans, average payments and claim rates. Several lenders have set aside provisions, and the final cost depends on how many customers come forward.

For the sector more broadly, the episode has reinforced the importance of capital strength and conduct standards. Banks that carry high capital ratios have more flexibility to absorb such costs while continuing to lend, and that flexibility is a theme running through the group's own commentary.

What to watch next

The first item is the pace of cash redress payments over the scheme period, and whether the final bill moves from the current estimate. A second is the restoration of a dividend, which will depend on capital levels relative to the group's target range and on how much of the redress cost has already been provided for.

Lastly, the growth target of 5% to 10% a year will be judged against loan book trends, margins and bad debt charges as the economy evolves. Cost discipline will remain a focus, because the benefit of the transformation programme matters most when income growth is modest.

Focus shifts to growth and costs

Attention is now turning to whether the group can rebuild returns once the redress process is complete. Costs have been a central part of that effort, with the transformation programme delivering savings ahead of the target of more than £25m that was set out earlier in the year.

Recent regulatory filings have been routine. A notice of the Annual General Meeting was published on 16 October, and on 6 November the company disclosed small purchases of shares by senior managers under its Share Incentive Plan, at 410p each. That price provides a recent reference point for the shares, which had closed at 466.8p around the time of the May update.