Close Brothers sells wealth unit as it braces for car finance hit

One of Britain’s biggest merchant banks is selling its wealth management arm for up to £200 million to fortify its balance sheet as it braces for a possible hit from a regulatory clampdown on its motor finance business.
Close Brothers will receive £172 million in cash upfront after revealing on Thursday that it had agreed to offload its asset management division to Oaktree, an American private equity firm. It will use the proceeds to boost its core capital buffers, which will rise by about 100 basis points as a result.
Bosses at Close Brothers are bolstering its finances after the Financial Conduct Authority started a wide-ranging review in January into potentially unfair practices in the motor loans industry, a market in which the merchant bank has operated for more than three decades.
This has fuelled fears among investors that the group faces either a fine or compensation bill, sending its share price tumbling by more than a third so far this year. Close Brothers has tried to assuage shareholders’ concerns by announcing in March a target to boost its capital position by about £400 million. This has already involved axing its dividend and scaling back lending but the sale of the wealth business, codenamed Titan internally, takes it closer to the target.
A deal has long been in the offing. It emerged last year — before Close Brothers was rocked by the regulator’s inquiry — that the group was reviewing options for its wealth manager, but a sale did not materialise. It was speculated that a deal could have valued the business, which oversees assets of £20.4 billion, at about £300 million.
Analysts at Keefe, Bruyette & Woods, a stockbroker, said the price tag of up to £200 million agreed with Oaktree, which includes a contingent deferred consideration of £28 million in preference shares, “feels at the low end of expectations”.
Yet Mike Morgan, the Close Brothers finance chief, denied that the regulator’s inquiry had weakened its hand over the sale, which is expected to complete early next year.
“I don’t believe we’re a forced seller of it in any sense,” he said. “I’m very comfortable with the amount that we’ve got for this.”
The disposal leaves Close Brothers focused on its core banking business and Winterflood, a market maker in UK equities. Founded in 1878, when it focused on investing in American farmland, the modern group has a £10.1 billion loan book and provides everything from business finance for small companies to financing for aircraft and boats.
Motor finance is a relatively large exposure for Close Brothers and accounts for about £2 billion of its outstanding lending. The group is led by Adrian Sainsbury, its chief executive, although it said on Monday that he had taken temporary medical leave and his main responsibilities had been transferred to Morgan.
The FCA stunned the motor finance industry when it said it was retrospectively reviewing car loans agreed between April 2007 and January 2021, which was when the regulator banned discretionary commissions in this area. It warned in July that the possibility that it would force firms to compensate customers was “more likely than when we started our review”.
Analysts believe this could leave the industry footing a bill running into billions of pounds and Lloyds Banking Group has set aside £450 million to cover the costs and possible compensation arising from the FCA’s review.
Close Brothers, which has not followed Lloyds in making a provision, said in its annual results on Thursday that it had accrued £6.9 million of costs from dealing with the regulator’s inquiry and customer complaints about car loans. It also expects costs of between £10 million and £15 million next year.
Given that the FCA has set itself a deadline of next May to update the market on its findings, Close Brothers faces months of uncertainty. Morgan said the regulator needed time to complete its review because of the complexity of the area but added: “Naturally it does cast a shadow over the sector.”
Close Brothers’ pre-tax operating profits climbed 27 per cent year-on-year to £142 million in the 12 months to the end of July. However, its shares were down 29½p, or 5.6 per cent, at 498p at the close on Thursday amid disappointment with its guidance for 2025.