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Highlights

  • Capital Reinforcement: £360 million CET1 capital preserved, nearing the £400 million target set for FY 2025.
  • Strategic Simplification: Sale of CBAM boosts CET1 ratio from 12.2% to 13.4%, generating £59 million in profit.
  • Cost Efficiency Gains: Estimated annual savings increased to £25 million from £20 million.

Close Brothers Group PLC (LSE:CBG) has released its financial results for the six months ending 31 January 2025, demonstrating strategic progress in capital preservation and operational efficiency despite challenging market conditions.

In March 2024, the company initiated a series of management actions designed to enhance its available Common Equity Tier 1 (CET1) capital by approximately £400 million by the end of the 2025 financial year. By the reporting date, Close Brothers had successfully preserved or generated around £360 million in CET1 capital, aligning with its capital trajectory.

A key milestone in this strategy was the completion of the sale of Close Brothers Asset Management (CBAM) on 28 February 2025. The transaction resulted in an estimated £59 million profit on disposal and increased the group’s CET1 ratio by approximately 120 basis points, from 12.2% to 13.4%. The divestment has allowed Close Brothers to streamline operations and sharpen its focus on its lending business.

Additionally, the group has made significant progress in cost management initiatives, with an additional £5 million in projected annualised savings, increasing the total expected savings for the financial year to £25 million, up from the previously estimated £20 million.

Close Brothers continues to explore further management actions to optimise risk-weighted assets (RWAs), including potential risk transfers in its Motor Finance portfolio and a broader review of its business segments.

Financial Performance

Operating income for the half-year period saw a slight decline, dropping by 1% to £390 million compared to £394.5 million in H1 2024. The marginal reduction in banking income, along with lower interest income from central functions, offset gains recorded by Winterflood, the group’s securities trading division.

Adjusted operating expenses rose slightly to £267 million from £264.7 million, driven by increased central function costs, despite savings achieved in Banking and Winterflood.

Adjusted operating profit fell by 15% to £74.9 million (H1 2024: £88.1 million), primarily due to higher impairment charges, slight income reductions, and increased costs.

The group posted a statutory operating loss before tax of £103.8 million, a significant contrast to the £87 million statutory operating profit recorded in H1 2024. This was largely due to a £165 million provision related to motor finance commission issues, along with costs associated with complaint handling and legal expenses in this segment.

Guidance and Outlook

Close Brothers remains optimistic about its Banking division’s resilience, with a strong underlying profit performance in the first half of the financial year. The company plans to resume selective loan book growth, anticipating modest expansion in the latter half of 2025, with the total loan book expected to remain broadly stable year-on-year.

The full-year net interest margin is forecast to be around 7%, slightly below the first-half exit rate of 7.1%. Banking adjusted operating expenses are projected to rise by approximately 1% compared to the prior year.

The group’s cost-saving initiatives continue to progress, with annualised savings expected to reach £25 million by the year’s end. Meanwhile, the bad debt ratio is projected to remain below the long-term average of 1.2%.

For the full financial year, central function net expenses are expected to range between £55 million and £60 million, reflecting higher professional fees and declining interest income.