Close Brothers Group has stopped its dividend payments after the FCA’s review in the motor finance industry creates uncertainty for its Banking division.
The watchdog banned brokers from adjusting interest rates on loans in 2021 as it incentivised them to pocket higher commissions.
However, the FCA has continued to receive “a high number of complaints” from car finance customers claiming to have been overcharged on their loans. As such, the regulator paused the eight-week deadline that providers have to respond to complaints in January this year.
This probe could impact Close Brothers’ motor finance arm, so the group’s chief executive Adrian Sainsbury said that it had removed its dividend to prepare for such a possibility.
“The FCA’s review of the motor finance industry is ongoing and it would be premature to predict the outcome or estimate the potential impact on the group,” he explained.
“The board however recognises the paramount importance of preparing the group for a range of outcomes from this review. As part of this, the board is taking a number of decisive actions to strengthen our capital position materially.”
Close Brothers Group paid a dividend of 22.5p per share this time last year, but cut it to zero in its most recent half-year report released today (19 March).
Half-year company results
Overall profit for the company (after tax) was up seven-fold in the first six months of its financial year (to the end of Jan), climbing to £94.4m from £12.6 during the same period last year.
Despite concerns around the FCA’s review, the banking division’s loan book was up 4% to £9.9bn since last year’s report.
However, Winterflood Securities was a laggard due to weakened trading activity. Sainsbury was positive about its future, stating that it “remains well placed for a recovery in investor appetite”.
Elsewhere, total client assets increased by 7% compared to AUM at the end of July last year, increasing from £17.3bn to £18.5bn. Net asset value per share remained steadfast at £11.
Close Brothers Asset Management achieved annualised net inflows of 9%, largely due to high demand for its bespoke investment management services, although profits fell by 27% from £8.6m to £6.3m. Overall, total AUM of CBAM increased by 8% over the period to £17.7bn, which was the result of both inflows and positive market performance. Close Brothers Asset Management saw a 12% increase in adjusted operating expenses, from £62.4m in H1 2023, to £70m in H1 2024, which it said was due to new hires and higher staff costs “due to inflation-related salary increases”.
Sainsbury said: “CBAM has a strong track record of growth, with healthy net inflows delivered by successfully serving existing clients and attracting new clients, combined with building new investment teams and acquiring selective IFA businesses. The business remains closely aligned with long-term structural growth opportunity presented by the wealth management industry and continues to be an attractive franchise for both portfolio managers and clients.”
