Close Brothers faces renewed scrutiny over cost-to-income targets

RBC analysts person warned that Close Brothers’ cost-to-income ratio remains materially higher than that of its UK mid-cap peers, expanding unit connected the slope to accelerate outgo reductions arsenic uncertainty implicit centrifugal concern redress continues, City AM reports.

According to RBC Capital Markets investigation cited by City AM, Close Brothers reported a cost-to-income ratio of astir 70 per cent, the highest among a radical of listed UK mid-cap lenders. This compares with astir 63 per cent astatine Metro Bank, portion specializer lenders OSB and Paragon reported materially little ratios of 39 per cent and 36 per cent respectively.

RBC said the examination underlines a structural outgo contented astatine Close Brothers, peculiarly arsenic the slope faces elevated provisions and regulatory uncertainty successful its centrifugal concern division, which accounts for astir 20 per cent of its £9.5bn indebtedness book.

At its 2025 full-year results, Close Brothers said it had delivered £25m of yearly outgo savings and identified a further £20m per twelvemonth implicit the pursuing 3 years. However, RBC said these measures “fell short” of what could beryllium achieved, estimating that the slope could region astir 7 per cent of its full outgo basal implicit the adjacent 12 months, equivalent to astir £32m.

The analysts highlighted the bank’s operating model, including 25 concern units with abstracted absorption layers, arsenic an country wherever efficiencies could beryllium realised. Simplifying the operation could prevention astir £5m, they said. A simplification successful headcount of astir 5 per cent could present a further £9m, with RBC noting Close Brothers’ “very low” loans-per-employee ratio compared with peers.

If these measures were implemented, RBC believes Close Brothers could trim its cost-to-income ratio to astir 56 per cent, beneath management’s existent people of 59 per cent, and determination person to the levels reported by different UK specializer lenders.

Motor concern remains a cardinal variable. In October, Close Brothers astir doubled its centrifugal concern provisions to £300m aft the Financial Conduct Authority provided further item connected its projected redress scheme. Final guidance from the regulator is expected successful aboriginal 2026.

"Close Brothers faces renewed scrutiny implicit cost-to-income targets" was primitively created and published by Leasing Life, a GlobalData owned brand.

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