Close Brothers Group H2 2026 Earnings Call Transcript

Quartr
Provided by Quartr
September 29, 2026

Key Takeaways

  • Positive Sentiment: Loan growth regained momentum, with underlying growth of 2% for FY2026 and 4% in the second half; all three divisions grew in the fourth quarter. Management expects FY2027 growth of 5%–10%, subject to market conditions.
  • Positive Sentiment: The cost-reduction program is ahead of schedule, delivering approximately £36 million of annualized savings versus a £25 million target. Close Brothers now expects to exceed £60 million of annualized savings by the end of FY2027 and achieve double-digit ROTE by FY2028.
  • Positive Sentiment: Capital and credit metrics remained resilient, with a 14.1% CET1 ratio, robust liquidity, and a 1.0% bad debt ratio below the 1.2% long-term average. Management expects credit quality to remain sound in FY2027, although Basel 3.1 is expected to reduce CET1 by about 80 basis points.
  • Negative Sentiment: FY2026 adjusted operating profit fell to £120 million from £144 million as income declined 6%, reflecting business repositioning, lower margins, and a smaller average loan book. Net interest margin is expected to decline by a further approximately 0.1% in FY2027 due to business mix changes.
  • Negative Sentiment: The board did not declare a final dividend for FY2026 because of continued uncertainty surrounding the FCA motor-finance redress scheme and related legal challenges. The provision remains approximately £320 million, with the ultimate cost still dependent on the outcome of the proceedings.
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Earnings Conference Call
Close Brothers Group H2 2026
00:00 / 00:00

Transcript Sections

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Mike Morgan
Mike Morgan
Group CEO at Close Brothers Group

Good morning, and welcome to the presentation of Close Brothers' 2026 preliminary results. I am Mike Morgan, Group Chief Executive, and I am joined today by Fiona McCarthy, our Group CFO. Today, I will start with a brief introduction and then hand over to Fiona, who will walk you through our financial performance. After that, I will return to focus on our strategic delivery and wrap up the presentation. We look forward to taking your questions afterwards, both via the telephone conference line and over the webcast. You can submit your questions either during or after the presentation. The group has been through significant change over the past two years as we have repositioned the business as a focused specialist bank. Today, we support 1.6 million customers with a loan book of GBP 9.5 billion across three core divisions of commercial, retail, and property.

Mike Morgan
Mike Morgan
Group CEO at Close Brothers Group

Our scale and contribution to the economy is meaningful.

Mike Morgan
Mike Morgan
Group CEO at Close Brothers Group

In the last year, we lent approximately GBP 6.5 billion to businesses and consumers across the U.K. and Ireland. We operate in markets with strong structural demand and where our deep customer relationships, local decision-making, and disciplined underwriting create genuine differentiation. We see significant potential for growth in these markets, and we are taking steps to materially reduce our cost base and deliver a step change in profitability. Our performance in full year 2026 reflects the significant progress we have made on delivery of our strategic objectives to simplify, to optimize, and to grow the business. We delivered the guidance we set, meeting, and in some areas, exceeding our targets. Loan book growth resumed. The overall book was flat year-on-year, but underlying growth was 2% and 4% in the second half, with all divisions growing in the fourth quarter, giving us good momentum as we enter full year 2027.

Mike Morgan
Mike Morgan
Group CEO at Close Brothers Group

We accelerated our cost program, delivering approximately GBP 36 million of annualized savings ahead of schedule. We now expect to exceed our target of GBP 60 million annualized savings by the end of financial year 2027. We retain a robust capital position above 14%, which places us well to absorb Basel 3.1 and support continued growth in the business. Our provision in respect of the FCA's Motor Finance Consumer Redress Scheme is unchanged since the third quarter at GBP 320 million. The business is now structurally different and capable of generating materially higher risk-adjusted returns. In financial year 2027, we expect to deliver underlying loan book growth within our 5%-10% target range, costs of approximately GBP 430 million, and a modest increase in return on tangible equity.

Mike Morgan
Mike Morgan
Group CEO at Close Brothers Group

Financial year 2028 will be the point at which we expect to see the more meaningful benefits from cost reductions, operational leverage, and growth.

Mike Morgan
Mike Morgan
Group CEO at Close Brothers Group

By financial year 2028, we expect costs to be at the lower end of our guidance range of GBP 410 million-GBP 430 million whilst growing the loan book. The progress we have made to date reinforces our confidence that we will deliver double-digit returns by financial year 2028, rising thereafter. We recognize the importance of shareholder distributions and remain committed to resuming distributions at an appropriate time. However, given the continued uncertainty regarding the outcome of the legal challenges to the FCA's Motor Finance Scheme and any potential financial implications, the board has decided not to declare a final dividend on ordinary shares for the 2026 financial year. We will continue to reassess options as greater clarity emerges, taking into account the group's future capital needs and shareholder feedback. I will now hand over to Fiona, who will take you through the financial update.

Fiona McCarthy
Fiona McCarthy
Group CFO at Close Brothers Group

Thank you, Mike, and good morning, everyone. Turning first to the income statement. Adjusted operating income reduced by 6% to GBP 643 million. This primarily reflected the deliberate repositioning of the business, a reduction in net interest margin, and a lower average loan book reflecting prevailing market conditions. Adjusted operating expenses decreased by 3% to GBP 431 million, reflecting strong cost discipline and the cost actions delivered during the year. Adjusted impairment losses were broadly unchanged at GBP 92 million. Taken together, adjusted operating profit was GBP 120 million, down from GBP 144 million last year. While AOP reduced across all three lending divisions, this was partly offset by a reduction in the group's central functions operating loss. Adjusting items totaled GBP 181 million, compared with GBP 267 million last year. I will provide more detail on these in a moment.

Fiona McCarthy
Fiona McCarthy
Group CFO at Close Brothers Group

As a result, the statutory loss before tax reduced from GBP 122 million to GBP 60 million, whilst the loss after tax from continuing operations reduced to GBP 65 million. Discontinued operations relate to Close Brothers Asset Management, sold in February 2025, and Winterflood Securities, sold in December 2025. Adjusted earnings per share were GBP 0.475, and return on average tangible equity was 5.5%. As Mike stated, we will not be paying a dividend in respect of the 2026 financial year and will reassess as greater clarity emerges in respect of motor finance commissions. Focusing now on the adjusting items. The largest is the increased provision relating to motor finance commissions, up by GBP 165 million, taking the total provision to approximately GBP 320 million. The provision has been calculated using a single scenario methodology based on the FCA's published redress scheme from March 2026.

Fiona McCarthy
Fiona McCarthy
Group CFO at Close Brothers Group

While there are aspects of the scheme which we disagree with, we decided not to challenge the scheme. However, it is currently subject to four legal challenges, with the hearing expected in December 2026 or February 2027. As such, the ultimate cost remains dependent on the outcome of the legal challenges and any further legal, regulatory, or industry developments. We also incurred GBP 7.7 million of other motor finance commissions related costs, including the unwind of the provision's time value discount and certain legal expenses, partly offset by insurance recoveries. In FY 2027, we expect a broadly similar cost. The charge of GBP 1.3 million incurred in relation to early settlements in motor finance reflects the unwind of the provision's time value discount. Restructuring costs were GBP 14.3 million, primarily comprising redundancy and associated costs.

Fiona McCarthy
Fiona McCarthy
Group CFO at Close Brothers Group

As our cost reduction program progresses, we continue to expect restructuring costs of approximately GBP 30 million-GBP 40 million in FY 2027. These charges were partly offset by a total of GBP 7.6 million of profit from businesses being exited, including the gain on the disposal of Brewery Rentals and a small operating profit in vehicle hire, which is being wound down over three to five years. Now looking at each of our divisions. In commercial, simplification is largely complete. Good progress has been made on optimization and the loan book returned to growth. The year-on-year results reflect lower income and margin and an increase in costs as we invest in technology. The prior year also includes Novitas in the results. Notwithstanding this, the loan book was up 3% to GBP 4.9 billion and up 6% in the second half.

Fiona McCarthy
Fiona McCarthy
Group CFO at Close Brothers Group

Invoice finance grew significantly in the second half, while specialist areas within asset finance continued to grow. The priority continues to be building on that momentum without compromising pricing or underwriting discipline. Performance in the retail division reflects the repositioning of the premium finance business, cost actions taken during the year, and a reduction in impairment charges. Motor finance delivered growth in both the U.K. and Ireland, while premium is increasingly focused on commercial lines and higher quality business. The bad debt ratio reduced from 1.5% to 1%, benefiting from the implementation of an updated IFRS 9 model in motor finance. The focus here is on delivering quality, sustainable growth and stronger risk-adjusted returns. Property continued to face challenging build to sell market conditions, which affected the loan book, income and profit. The higher bad debt ratio reflects provisions against a small number of facilities, including legacy cases.

Fiona McCarthy
Fiona McCarthy
Group CFO at Close Brothers Group

Recent underwriting continues to perform well. Importantly, diversification is gaining traction through good early momentum in build to rent and purpose-built student accommodation. Finally, the loss from group central functions reduced from GBP 54 million to GBP 37 million, primarily reflecting a reduction in advisor costs. In regard to the loan book, the headline position was broadly flat at GBP 9.5 billion, including the headwind from our legacy motor finance business in Ireland and the repositioning of the premium finance business towards commercial lines. On an underlying basis, momentum improved with growth of 2% for the year as a whole and 4% in the second half. All three divisions grew in the fourth quarter. Overall, we exited FY 2026 with good momentum and expect underlying growth to be within our 5%-10% target in FY 2027, subject to market conditions.

Fiona McCarthy
Fiona McCarthy
Group CFO at Close Brothers Group

As we've previously guided, NIM across our lending divisions remained robust at 6.9%, compared with 7.2% last year. The reduction largely reflects the deliberate repositioning of the premium finance business, the wind down of Novitas, and changes in business mix as we focus on larger deals with attractive risk-adjusted returns. Therefore, the headline NIM movement needs to be seen in context. We are prioritizing sustainable growth and stronger risk-adjusted returns. All else equal, we expect the NIM in FY 2027 to be slightly below FY 2026, reflecting a further circa 0.1% impact from mix, including premium finance repositioning. Moving on to costs. Adjusted operating expenses reduced by 3% in FY 2026 and were materially better than guidance. This reflects strong cost discipline as well as faster than expected delivery of cost saving initiatives.

Fiona McCarthy
Fiona McCarthy
Group CFO at Close Brothers Group

These savings included workforce efficiencies, an increase in outsourcing and offshoring, lower advisor and third-party spend, and reducing our property footprint. Together with a reduction in variable compensation, this more than offset the impact of inflation, growth and ongoing investment in our business, resulting in overall adjusted operating expenses of GBP 431 million. In 2026, we delivered approximately GBP 36 million of annualized cost savings, substantially ahead of our GBP 25 million target. By the end of FY 2027, we expect to deliver in excess of GBP 60 million annualized savings from the current phase of our transformation program. Whilst this will result in further in-year cost reduction, we expect this to be broadly offset by inflation and investment in growth, including front office hires and additional variable costs. As a result, we expect the cost base to remain broadly stable at approximately GBP 430 million this year.

Fiona McCarthy
Fiona McCarthy
Group CFO at Close Brothers Group

By FY 2028, we will see the cost savings more fully reflected in financial performance, with costs towards the lower end of our GBP 410 million-GBP 430 million guidance. Combined with growth in the loan book, this is expected to support an ER ratio below 60%, demonstrating the scalability of the group operating model. This is not the endpoint, and we expect further reduction in this ratio as the business continues to grow beyond 2028. Focusing on credit quality. Credit performance remains solid, with the bad debt ratio at 1%, in line with the prior year and below our long-term average of 1.2%. This reflects the benefit of an updated IFRS 9 model in motor finance earlier in the year, offset by higher provisions in the property business in the fourth quarter.

Fiona McCarthy
Fiona McCarthy
Group CFO at Close Brothers Group

We closely monitor the evolving impacts of inflation and cost of living pressures on customers, and whilst the external environment remains uncertain, we are confident in the quality of the loan book and expect the bad debt ratio to remain below its long-term average in FY 2027. We continue to maintain a strong funding and liquidity position while making progress to optimize the balance sheet. Over the year, we have reduced our liquidity to more normalized levels while significantly increasing the availability of contingent collateral. We have also been focused on managing the cost and level of our deposits across our diversified suite of savings products, with agile pricing reflecting market conditions, demand, and our funding needs. Overall, total funding stood at GBP 11.4 billion, down from GBP 12.7 billion last year, retaining a well-diversified mix and a predominantly retail deposit base, which represents 57% of total funding.

Fiona McCarthy
Fiona McCarthy
Group CFO at Close Brothers Group

Deposits are largely term, with only 10% available on demand. Our liquidity position remains robust, with GBP 3 billion of liquidity resources split between cash, high-quality liquid assets, and contingent collateral. We have benefited from a lower interest rate environment, along with active management of our funding base, with the average cost of funds reducing to 4.6%. We have maintained strong access to wholesale funding markets, raising half a billion during the year through the successful refinancing of our Tier 2 and the issuance of our first senior unsecured bond since 2020. Overall, our funding profile, liquidity pool, and capital markets access provide a strong foundation to support future growth. Turning to capital, our CET1 ratio stands at 14.1%, even after the additional GBP 165 million motor finance commissions charge taken during the year.

Fiona McCarthy
Fiona McCarthy
Group CFO at Close Brothers Group

This demonstrates our conservative capital position and reflects both underlying profits in the year and the RWA benefit from the sale of Winterflood. Our minimum CET1 requirement has increased from 9.7% to 10.3% following a regular periodic review of our capital requirements. The implementation of Basel 3.1 from the 1st of January 2027 is currently estimated to reduce our CET1 ratio by approximately 80 basis points to 13.3% on a pro forma basis as at 31st of July 2026. It will also reduce our regulatory minimum by approximately 40 basis points to 9.9%, resulting in overall CET1 capital headroom of circa 340 basis points. In monetary terms, the impact on headroom is largely offset by the PRA's Pillar 2A SME lending adjustment.

Fiona McCarthy
Fiona McCarthy
Group CFO at Close Brothers Group

From here, we expect CET1 to operate within our medium-term range of 12%-13% as we generate capital, grow the loan book, and resume shareholder distributions at an appropriate time. On this slide, we have the FY 2027 guidance updates. Having met and exceeded our FY 2026 guidance, we are reiterating our medium-term targets. While we expect further progress in FY 2027, the trajectory to FY 2028 is phased, particularly on costs and returns. The FY 2026 cost story was about capturing some of the more immediate savings opportunities and putting in place the actions needed to build a more efficient business. In FY 2027, we are aiming to keep group costs broadly flat at around GBP 430 million. NIM is expected to be slightly below FY 2026, reflecting a further 0.1% impact from mix, including the premium finance repositioning.

Fiona McCarthy
Fiona McCarthy
Group CFO at Close Brothers Group

We anticipate underlying growth within our target range of 5%-10%, subject to market conditions, with the bad debt ratio expected to remain below our long-term average of 1.2%. We expect a modest increase in ROTE, although the progression will not be linear. As per the previous slide, we expect CET1 to be within our 12%-13% target range in FY 2027 after absorbing Basel 3.1 and loan book growth. As we move to the medium term, the accumulation of loan book growth of 5%-10% through the cycle, a lower cost base, and operating leverage support a double-digit ROTE by FY 2028 and rising thereafter. I will now hand back to Mike, who will provide an update on our strategy.

Mike Morgan
Mike Morgan
Group CEO at Close Brothers Group

Thank you, Fiona. To recap, our strategic priority remains clear. We have reshaped the group to improve returns through simplify, optimize, and grow. We have built good momentum over the last year, which reinforces our confidence as we move into full year 2027 and full year 2028. On Simplify, we now have a focused portfolio built around commercial, retail, and property. Differentiated businesses operating in attractive specialist markets. Our focus is therefore firmly on optimize and grow. Optimize, as you have heard from Fiona, means creating a lower cost, more efficient, scalable operating model. Grow means building on the strong positions we have in our selected markets, increasing our share, strengthening our customer propositions, and developing new products where we see attractive, sustainable returns. The first pillar of our strategy, Simplify, is now largely complete.

Mike Morgan
Mike Morgan
Group CEO at Close Brothers Group

We have refocused the group through the disposals of the asset management division, Winterflood, and Brewery Rentals, alongside our winding down of vehicle hire, and we have closed Novitas. The repositioning of premium finance towards commercial lines will be largely concluded by the end of financial year 2027. Simplification was not an end in itself. It was about establishing stronger foundations for the next phase of our strategy. These actions have created a more focused organization based on stronger fundamentals with higher returns potential. This slide shows the high level progress we are making through our transformation program and how it is evolving. We began with a series of tactical actions designed to reduce costs quickly, delivering approximately GBP 25 million of cost savings back in FY 2025. In late 2025, we launched our transformation program, focused on delivering material cost savings through a redesign of our operating model.

Mike Morgan
Mike Morgan
Group CEO at Close Brothers Group

We are now well through the first phase of this, which is primarily focused on simplifying individual businesses and functions. We initially targeted approximately GBP 60 million of annualized cost savings, delivering around GBP 20 million each year over financial year 2026, 2027, and 2028, but we now expect this program to exceed GBP 60 million annualized savings by the end of 2027. We are also now planning for the next phase. This will involve a fundamental change, moving away from our current federated model, bringing functions and operations together at an enterprise level. All of our transformation work is underpinned by embracing the opportunity that AI and automation present to improve efficiency, create a better experience for customers and colleagues in supporting future growth. We have already deployed a number of AI solutions across our businesses and are seeing tangible benefits.

Mike Morgan
Mike Morgan
Group CEO at Close Brothers Group

For example, in commercial, we have deployed agentic AI to automate the submission and processing of broker proposals. The technology gathers, organizes information, removes manual tasks, and supports faster progression through the credit workflow, enabling quicker decisions, greater efficiency, and improved end-to-end experience for brokers and customers. Over time, we see potential for additional cost savings and growth reflecting the deployment of AI, automation, and digital solutions across our businesses. As we move into the next stage of delivery of the group strategy, I wanted to share some changes to roles and responsibilities within the executive committee. From the 1st of October, Matt Roper has been appointed to the newly created role of Chief Banking Officer with responsibility for the group's lending activities across commercial, retail, and property. Phil Hooper remains Chief Executive of Property, and Ian Cowie moves into the newly created role of Chief Operating Officer.

Mike Morgan
Mike Morgan
Group CEO at Close Brothers Group

I am in no doubt that these changes will sharpen our focus on driving growth across our lending activities and strengthen our enterprise operating model. Moving on to growth. We have repositioned our portfolio of businesses to focus on markets with strong structural demand and where we can offer a differentiated proposition to our customers. We see significant potential across our businesses from a combination of underlying market growth, share gains, and the development of new products and propositions. Growth rates will naturally fluctuate, reflecting short-term market conditions, and we will see opportunities and challenges within each business. Historically, these businesses have grown at 8% CAGR. Overall, we are confident that we can deliver 5%-10% loan book growth through the cycle. This slide on commercial shows how we have been delivering that, focusing on our growth priorities in mature businesses and new and innovative products.

Mike Morgan
Mike Morgan
Group CEO at Close Brothers Group

Kilwinning is a good example to demonstrate a new sector growth. By financing Unibal's third Scottish battery project, we are enabling a customer to invest in new capacity in an attractive growth area within the energy sector. At the same time, we continue to leverage the strength of our relationship-led model and underwriting expertise. This supports larger and more complex financing requirements while maintaining a prudent and well-controlled risk appetite. By way of example, we recently completed a large asset-based lending transaction for a leading Scottish timber frame manufacturer. The transaction combined multiple lending products across asset and invoice finance within a single capital structure. This allowed us to deliver flexible funding to help the business invest, innovate, and pursue its growth plans with confidence.

Mike Morgan
Mike Morgan
Group CEO at Close Brothers Group

In retail, we are already seeing strong progress in the motor finance business with a return to growth in the U.K. and record new business in Ireland. We reentered the Irish market through acquisition in 2023 and have since then increased our market share from 8.5% in 2024 to 13%. We are expanding our offering with locally relevant products, such as dealer forecourt funding. In premium, we are looking to build on our existing partnerships with large commercial lines insurers and underwrite larger and more complex deals. One example is our new three-year partnership with JMG, one of the U.K.'s leading independent insurance brokers. This broadens access to commercial customers and supports growth in our core commercial premium finance proposition. I would describe this growth as ambitious, sustainable, and disciplined, built around strong partnerships and a clear path to improved returns.

Mike Morgan
Mike Morgan
Group CEO at Close Brothers Group

In property, we are extending our proposition, supporting larger, more diverse developments. While the near-term market remains challenging, our through-the-cycle approach allows us to stay close to established build-to-sell clients. We have extended our product offering, and we are growing in new market segments, including build to rent and purpose-built student accommodation. We are already seeing tangible evidence of progress. Our first transaction with GS8 was a GBP 20 million revolving credit facility supporting 52 homes at Medburn Yard with a gross development value of GBP 47 million. It brought us a new relationship with an innovative house builder while remaining firmly within our areas of expertise. Similarly, our recent partnership with Draycott in Cardiff is an example of our increasing appetite for larger opportunities in the build-to-rent sector.

Mike Morgan
Mike Morgan
Group CEO at Close Brothers Group

Importantly, these opportunities complement our core build-to-sell business, enabling us to continue supporting longstanding clients as they navigate market challenges and progress their own development pipeline. To conclude, we have made significant progress in the 2026 financial year, and we enter 2027 with confidence and a growing momentum. We have repositioned the business, we have returned to loan book growth, and we expect that underlying growth to accelerate in financial year 2027 within our 5%-10% range. The opportunities are well understood, the priorities are clear, and we are demonstrating that we can turn those opportunities into high-quality growth. We have also demonstrated strong execution on costs. Savings were delivered ahead of schedule in financial year 2026, and we expect to exceed the overall savings target for full year 2027. This is creating a more efficient and scalable operating model. More broadly, our strategy is clear. Simplify is largely complete.

Mike Morgan
Mike Morgan
Group CEO at Close Brothers Group

We are now firmly focused on optimizing the business and growing in the specialist markets where we have strong positions and attractive opportunities. We have been through a challenging period, and it has been difficult with tough decisions to make. I would like to thank our people for their ongoing dedication, support, and commitment. They have been truly outstanding. I remain fully committed to the targets we have set. I am confident that we are in the right businesses, have the right team, and have the momentum to continue delivering on our strategy and to achieve our target of double-digit returns by 2028, rising thereafter. Thank you for your time, and we would now be pleased to take your questions.

Operator

Ladies and gentlemen, we will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Questioners on the phone are requested to disable the loudspeaker mode while asking a question. Anyone who has a question may press star and one at this time. One moment for the first question, please. The first question comes from Benjamin Toms from RBC CM. Please go ahead.

Benjamin Toms
Analyst at RBC CM

Morning, both. Thanks for taking my questions. Three, if that is all right. They are very short ones. Firstly, base rate expectations have got up by 100 basis points over the last month. Do you mind just talking a little bit about how you expect higher rates might impact your business and to what extent the higher rate environment is baked into your guidance? Secondly, the Upper Tribunal hearing will be in December or February. How long post that hearing do you expect it will take to hear the outcome of that hearing? Thirdly, one of your competitors in the specialty finance space is up for sale. If that competitor is acquired by a High Street bank, providing your competitor access to cheap current account funding, do you expect any disruption to any of your business lines from more aggressive pricing? Thank you.

Mike Morgan
Mike Morgan
Group CEO at Close Brothers Group

Thank you, Ben. Thank you for the questions. I think let us start with the base rate implications. Clearly, our latest forecasts are built around the latest observations we see in the interest rate markets. I think as an overriding comment, I would say higher interest rates do put pressure on SMEs, and we have seen those higher for longer. When we started this year, we were expecting to see interest rate reductions over the course of the year. But of course, those have built up, and naturally, we pass those through because we want to maintain our margin. It is a challenge, though, for SMEs, but they are entrepreneurial by nature, and they will find ways to get around this and develop. What I can say is, if you look historically at the markets we are in, we have seen growth at 8%-9% compound annual growth rate.

Mike Morgan
Mike Morgan
Group CEO at Close Brothers Group

It will be above that at certain times, and it will be below it at other times. But through the cycle, it has been there in all manner of interest rates. I think they can cope with that. What we also need, though, is certainty, because for SMEs, they need to be able to plan, and if they do not have certainty, that can be challenging. We have obviously got a budget coming up, and it will be very interesting to see what comes through from that. But if we can get certainty and some stability interest rates, then I think the businesses that we are operating in can provide the growth that we are forecasting. That would be my sense on interest rates. On the Upper Tribunal, the question it is a particularly challenging one.

Mike Morgan
Mike Morgan
Group CEO at Close Brothers Group

How long will it take the Upper Tribunal to arrive at a verdict after they have heard the case? The honest answer, Ben, is I am not clear, but I would suspect it will be a number of months, but I have no basis for making that comment. If we see, I presume you are referring to Aldermore and where the high street banks step in, I think we would have to look at the facts and circumstances of that acquisition as it comes in. But what I can say with Close Brothers, we have a diversified funding base. We have strong margins. We are seeing our returns improve, and we have a very clear plan to get that back to double-digit returns in 2028. So I will focus on what we are doing and let the others focus on what they are doing.

Benjamin Toms
Analyst at RBC CM

Thank you.

Operator

The next question comes from Sanjena Dadawala from UBS. Please go ahead.

Sanjena Dadawala
Sanjena Dadawala
Analyst at UBS

Thank you. Good morning. Thank you for taking my questions. Two, please. First, on loan growth, good to see loan growth come back in the second half. A lot of it was the 26% half-on-half growth in invoice finance. What is driving that? Are those levels sustainable? How are you thinking about the rest of the book, especially asset finance and property? Second, could you please also talk about the uptick in impairments in the fourth quarter, taking the 0.8% in the nine months to 1%? How are you thinking about asset quality trends into FY 2027? Specifically, if you could share the coverage levels in the troubled property portfolio loans, please. Thanks.

Mike Morgan
Mike Morgan
Group CEO at Close Brothers Group

Okay. The first question was around what is driving the loan book forward in the second half of the year, yes? I think what was encouraging, Sanjena, when we looked at that second half, we saw 4% growth. In the final quarter, we saw growth right across the portfolio. Every business grew. The honest answer to the question is all the businesses move into FY 2027 with good momentum. We gave some examples as part of our presentation on areas we are seeing it. Certain parts of asset have grown well over the period. We have seen good growth in our wholesale portfolio. We have seen areas in invoice finance really pushing on very strongly in the second half. We talked about in motor how the U.K. business is doing well, but equally, Ireland is selling record volumes at the moment.

Mike Morgan
Mike Morgan
Group CEO at Close Brothers Group

With premium, we gave examples of new brokers that we are bringing in as we move into commercial lines. I think on property, yes, build to sell is a challenging environment. Very interesting to see Andy Burnham's announcement around Help to Buy over the weekend, and I think that presents real opportunity as we move into FY 2027. With the fact that we were talking about other product sets that we have, build to rent and purpose-built student accommodation, that has taken off very well indeed. I am very pleased we showcased an example as part of the presentation there where we are seeing that growth. So we have diversity in our property book. The answer really is right across the book. We are not relying on one particular book to drive the growth. As I say, historically, those have grown at sort of 8%-9%.

Mike Morgan
Mike Morgan
Group CEO at Close Brothers Group

In terms of asset quality, Fiona, do you want to pick up just on that and on the property piece?

Fiona McCarthy
Fiona McCarthy
Group CFO at Close Brothers Group

Yes, absolutely. Thanks, Mike. Good morning, Sanjena. Yes, the fourth quarter, the uptick in impairments, as we disclosed, this related to a small number of cases in our property business, including some legacy cases there. Indeed, really some business that we would not have written today. We have talked about the stressed build to sell environment, and we did see some developers, a very small number of developers, fail as a result of some of those pressures, and that has come through in the impairments. So I would say a small number of relatively ring-fenced cases there. We are confident in the quality of our portfolio and in our coverage levels across the whole business, including in property. I think the last part of your question, Sanjena, was around the coverage ratio. So overall for the bank, coverage ratios increased from 2.6% to 2.7% year-on-year.

Fiona McCarthy
Fiona McCarthy
Group CFO at Close Brothers Group

Our coverage levels overall for the property business are 5.6%, and within that Stage three is at 35%, and that reflects really that uptick that we saw in Q4 there. So strong coverage levels, strong book quality, and confidence in our underlying impairments.

Mike Morgan
Mike Morgan
Group CEO at Close Brothers Group

I would just reiterate those points. 90% of our book is secured and structurally protective, and we've got prudent lending criteria. So I'm very comfortable with our credit quality right now.

Sanjena Dadawala
Sanjena Dadawala
Analyst at UBS

Thank you. Can I just come back on the first question? Is there more color you can provide on the invoice finance performance in the second half? Because that really stands out.

Fiona McCarthy
Fiona McCarthy
Group CFO at Close Brothers Group

Yes. Apologies, Sanjena, we didn't quite cover that on the first question. So yeah, as you say, the growth there in the second half in invoice finance was particularly pronounced at 26%. As you might recall, we called out in the H1 results, we did see a particular seasonal dip in invoice finance at the end of the first half, so at the end of January 2026. So whilst we are confident in the growth opportunities in our invoice finance business, that absolutely forms part of our 5%-10% go forward. I would say that H2 performance was a little unusual because of that seasonal dip at the end of the first half.

Sanjena Dadawala
Sanjena Dadawala
Analyst at UBS

Thank you very much.

Operator

As a reminder, if you would like to ask a question, you may press star and one at this time.

Mike Morgan
Mike Morgan
Group CEO at Close Brothers Group

That is all the questions as far as I can see. I would just like to thank you for coming on the call this morning, and we look forward to updating you in six months' time.

Executives
    • Mike Morgan
      Mike Morgan
      Group CEO
    • Fiona McCarthy
      Fiona McCarthy
      Group CFO
Analysts
    • Benjamin Toms
      Analyst at RBC CM
    • Sanjena Dadawala
      Analyst at UBS
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