Release Date: March 18, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Close Brothers Group PLC (CBGPF, Financial) delivered robust underlying profit in banking, maintaining strong margins and resilient credit quality.
- The company has made significant progress on cost management initiatives, now expecting GBP25 million of annualized savings by the end of the financial year.
- Successful strategic sale of CBAM is estimated to benefit the CET1 capital ratio by around 120 basis points.
- The company has generated or preserved approximately GBP360 million of CET1 capital over the last 12 months, reflecting a strong commitment to resilience.
- Close Brothers Group PLC (CBGPF) maintains a strong balance sheet with a pro forma CET1 capital ratio of 13.4%, significantly above the minimum regulatory requirement of 9.7%.
Negative Points
- Adjusted operating profit reduced by 15% to GBP75 million, with an operating loss before tax of GBP103 million due to a GBP165 million provision related to motor commissions.
- The loan book reduced by 3% in the first half, driven by seasonality and selective lending.
- The company will not pay an interim dividend in respect of the first half of the financial year due to uncertainty around motor commissions.
- Winterfloods continued to face unfavorable market conditions, resulting in an operating loss of GBP0.8 million.
- There is significant uncertainty around the potential outcomes of the Supreme Court appeals and the FCA's ongoing review of motor commissions, which could impact future financial performance.
Q & A Highlights
Q: Can you discuss the impact of the FCA's recent announcement on your GBP165 million provision for motor finance, and how Close Brothers might determine customer losses without detailed records?
A: Mike Morgan, Group Chief Executive, explained that the FCA's announcement provides some insight into their approach post-Supreme Court decision. However, the outcome is uncertain until the Supreme Court ruling. The GBP165 million provision is based on a weighted probability assessment, and while it could be higher or lower, it is deemed appropriate given current information.
Q: Your half-year net interest margin (NIM) was 7.3%, but full-year guidance is 7%. Does this imply a lower exit rate, and will margins improve once lending resumes?
A: Fiona McCarthy, Group Chief Finance Officer, clarified that the NIM is affected by technical factors like the number of days in each half-year. The exit rate for FY25 is expected to be around 7%, slightly lower than 7.3%, but not as low as 6.7%. Mike Morgan added that maintaining a strong NIM is crucial, but strategic choices will influence it.
Q: With a focus on risk-adjusted returns, how will this affect lending prices and NIM, especially in retail lending?
A: Mike Morgan emphasized the importance of operating in markets with strong, sustainable returns. Larger deals may have lower NIMs but offer better credit quality and risk-adjusted returns. Fiona McCarthy noted that the bad debt ratio is expected to remain below the long-term average of 1.2%.
Q: Can you explain the higher cost-saving target in light of low restructuring spend?
A: Fiona McCarthy stated that cost-saving initiatives have been executed more efficiently than anticipated, reducing the need for higher restructuring costs. Some initiatives, particularly in retail, have been paused due to ongoing activities around motor commissions but remain available for future execution.
Q: What factors will reduce capital from the current level to the circa 13% guidance, and what is the scale of capital actions from here?
A: Mike Morgan explained that the capital actions, including the sale of CBAM and selective lending, have brought the CET1 ratio to 13.4%. Future capital use will depend on loan book growth, subject to demand. Additional capital actions, like risk transfers, are ready but will be executed as needed, depending on the Supreme Court's decision.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
