Close Brothers has reported a £103m loss in its latest half-year results, as the group continues to face uncertainty from the Financial Conduct Authority’s (FCA’s) motor finance investigation.

The lender posted a pre-tax profit of £88.1m in H1 a year ago but has swung to a loss after being hampered this year by a £165m provision relating to motor finance commissions.

Historic motor finance discretionary commission arrangements (DCAs) have been under review by the FCA since January last year. After the regulator’s 2021 ban on DCAs had removed the incentive for brokers to increase the interest rate that a customer pays for their motor finance, a high number of complaints from customers to motor finance firms followed, claiming compensation for commission arrangements prior to this ban.

In Close Brothers’ latest trading statement, covering the six months to 31 January, it revealed that approximately £200m in direct and indirect costs associated with the motor finance commissions uncertainty could affect the group’s total operating expenses for the financial year.

This includes £10m of elevated group expenses related to professional and advisory fees, and £22m from complaints handling and other operational and legal costs, in addition to the £165m provision taken in H1.

Some of these costs are temporary, Close Brothers said, and are expected to diminish once the uncertainties in relation to the motor finance commissions investigation are resolved.

Close Brothers chief executive, Mike Morgan, said that the company’s priorities include focusing on “greater simplification”, “improving operational efficiency”, and “driving sustainable growth”.

“Our goal is to ensure that, once the motor finance commissions uncertainty has been resolved, the group is well positioned to generate strong, sustainable returns,” Morgan added.

“Alongside a stronger capital position, delivering on these priorities will create a more efficient and resilient business, one that delivers greater value for shareholders and continues to support customers, as we have through many cycles.”

Since the FCA launched its review, a ruling by the Court of Appeal raised the possibility of “widespread liability” among motor finance firms wherever commissions were not properly disclosed to customers. Firms affected by the FCA’s investigation are currently waiting for the Supreme Court to hear an appeal against the Court of Appeal’s judgment, on 1 to 3 April.

Last week, the FCA said it would confirm within six weeks of the Supreme Court’s decision whether it will propose a redress scheme.

“It looks like a result will come over the summer and shareholders will be watching nervously to find out the scope of redress Close Brothers is likely to face,” investment director at AJ Bell, Russ Mould, added.

“Weak guidance on the key net interest margin metric will have done nothing to reassure shareholders on the long-term prospects for the business. In terms of what it can control, the company has suspended dividends and is trying to scale back costs.

“Close Brothers looks set to emerge from this crisis as more of an old banger than a well-oiled machine.”

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