One day after a famous short-seller said Close Brothers has “systematically misrepresented” the extent of its exposure to the car loan mis-selling scandal, the merchant bank said it would axe 600 jobs as it looks to cut costs.
Yesterday shares in the finance house tumbled 14 per cent on Monday after Viceroy Research, which has previously called out Wirecard and Home Reit, said Close would have to at least double its provision for the scandal, which could end up costing the car loan sector £10 billion, watchdogs estimate.
Close expects to pay £300m for the car saga, which saw the commission paid to sales people not disclosed to consumers.
Lloyds Bank has the biggest exposure of any financial business, with much of the car trade also on the hook. Lloyds could end up paying out £2bn, though it has raised criticisms of how the regulator, the Financial Conduct Authority, is calculating payments.
The FCA said payouts are due on around 14 million unfair car finance deals, averaging at about £700 each, within a 360-page consultation document for its proposed redress scheme published last week.
Shares in Close were up slightly today at 360p.
The firm said the cuts – nearly a quarter of its 2,600-strong workforce – would be made over the next 18 months across its teams in the UK and Ireland.
It comes as part of plans to cut costs by about £25 million in its current year to the end of September, up from a £20 million previous target, and by around another £60 million in the next financial year, which is a year earlier than planned.
The cuts will come from actions including moves to outsource and offshore work, cut back its office network and roll out the use of artificial intelligence (AI) “at pace”.
Chief executive Mike Morgan said: “While the impact on affected colleagues is regrettable, these actions are necessary to structurally lower our cost base, while increasing our agility and ability to serve our customers.”
The note from Viceroy said: “We believe Close Brothers has systematically misrepresented its exposure to the Financial Conduct Authority’s forthcoming motor finance consumer redress scheme.”
Viceroy thinks Close could have to pay out between £572m and £1.23bn to compensate customers in all. At the higher end, that exceeds the entire market value of the company.
Close Brothers said it “strongly disagrees” with Viceroy’s conclusions. It added: “Our provisioning approach in relation to this matter is in accordance with UK-adopted international accounting standards and follows a robust governance process.”
Short-sellers such as Viceroy take a market position against shares, betting they will fall.
Close today which it reported a £65.5m loss for the six months to the end of January. It reported a £102.2m loss for the same period last year.
Additional reporting by PA
