- Merchant bank reveals shake-up of premium finance division
- The group is not exiting personal lines but will focus efforts on business clients
Close Brothers Group shares slumped on Wednesday after the firm unveiled plans to overhaul its premium finance division.
The merchant banking business told shareholders it would be ‘reducing our emphasis’ on personal lines, which predominantly covers motor and home insurance premiums.
It comes as the UK Supreme Court prepares to deliver a final decision later this month on a Court of Appeal ruling last October that declared it was illegal for lenders to give commissions to dealerships without a car buyer’s informed consent.
Like other motor finance providers, Close Brothers is worried it could be left with a substantial compensation bill if the Supreme Court does not rule in its favour.
It has already cancelled its dividend, sold its wealth management division to Oaktree Capital Management, and set aside £165million in the first half of this financial year to cover potential legal and redress costs.
Close Brothers said the ‘market environment has changed’ for personal lines, with rising costs, broker consolidation, and operational complexity dampening its ‘long-term attractiveness’.
Slowing down: Close Brothers Group said it will be ‘reducing our emphasis’ on personal lines, which predominantly covers motor and home insurance premiums
The London-based firm will instead concentrate on offering commercial lines, which it believes have the highest level of risk-adjusted returns and long-term growth potential.
To support this transition, it plans to reduce its underlying annual costs by £20million while also investing approximately £15million in modernising its technology platforms and streamlining operations.
Close Brothers will additionally exit certain broker relationships over the coming six to 12 months that lack a commercial lines focus.
These particular brokers contributed about just 4 per cent of the group’s operating income and 3 per cent of its loan book as of January 2025.
Close Brothers anticipates its premium finance loan book shrinking by around 30 per cent over the next three years, as well as lower operating profits in the division.
Mike Morgan, chief executive of Close Brothers, said: ‘We are proactively shaping a more efficient and focused premium finance business by repositioning it towards commercial lines.’
He added: ‘As outlined previously, my priorities remain to simplify the group, improve operational efficiency, and drive sustainable growth.
‘This decision brings us closer to a more sharpened portfolio of core businesses positioned to deliver attractive risk-adjusted returns.’
Shares in the company plunged 7.9 per cent to 378.6p by the late morning, making them one of the FTSE 250 Index’s biggest fallers.
However, the shares have added around 75 per cent since the start of the year, reflecting suggestions that any compensation arising from the motor finance scandal could be less painful than first feared.
Analysts at Peel Hunt said on Wednesday: ‘The more material news flow for Close Brothers will be the Supreme Court ruling on motor finance commissions.
‘The hope is that the verdict will be announced before the summer recess for the courts, which would mean it would come within the next few weeks in July.
‘Our model suggests a range of outcomes, from £72million to £481million, depending on the redress required.
‘This compares to the £165million provision Close has already booked.’
DIY INVESTING PLATFORMS
AJ Bell
AJ Bell
Easy investing and ready-made portfolios
Hargreaves Lansdown
Hargreaves Lansdown
Free fund dealing and investment ideas
interactive investor
interactive investor
Flat-fee investing from £4.99 per month
InvestEngine
InvestEngine
Account and trading fee-free ETF investing
Trading 212
Trading 212
Free share dealing and no account fee
Affiliate links: If you take out a product This is Money may earn a commission. These deals are chosen by our editorial team, as we think they are worth highlighting. This does not affect our editorial independence.
This article was originally published by a www.dailymail.co.uk . Read the Original article here. .