Stepping down to focus on his health, the departing CEO at the UK banking and financial services group makes way for a permanent successor. Close Brothers has contended with a regulatory investigation into alleged wrongful practices at its motor finance arm.

London-listed Close Brothers, which is wrestling with a regulatory investigation into its motor finance business, said yesterday that group CEO Adrian Sainsbury had left the firm to “focus on his health.”

Group finance director Mike Morgan (pictured) has been named permanent chief executive, subject to regulatory clearance. 

Close Brothers said in a statement that Sainsbury is “recuperating well and expected to make a full recovery.” It did not elaborate.

"While the market could respond negatively to the permanent loss of Mr Sainsbury, we think that bringing some certainty around the CEO role is a sensible decision by the board, given the significant uncertainty overhanging the investment case due to the ongoing challenges in the UK motor finance market, where the legality of historical commission payments has been challenged,” Gary Greenwood, equity analyst, Shore Capital, said in a note. 

Close Brothers’ share price has been slammed by concerns about the motor finance probe, suffering a price slump of more than 70 per cent in the 12 months to yesterday. Prices fell about 2 per cent on Tuesday, fetching 227.8 pence per share around mid-afternoon. Close Brothers is appealing the motor finance matter in the UK’s Supreme Court. Depending on the outcome of any legal action, the motor finance industry could be hit by demands for billions of pounds in compensation, forcing firms to make provisions that will hit their bottom line. 

"The board would like to sincerely thank Adrian for his material contribution during his 11 years with the group, the last four of which were as chief executive,” Mike Biggs, chairman, said. “During this time, he has overseen a period of significant growth and development for the group, successfully leading the organisation through a challenging period which includes Covid and heightened geopolitical uncertainty.”

Morgan has been group finance director for the past five years, acting as ad interim CEO over recent months.

Changes
Close Brothers has been restructuring. In September last year it sold its asset management business to funds run by asset management house Oaktree Capital Management for an equity value of up to £200 million ($266 million). Close Brothers said the equity value of the deal, which included £28 million of contingent deferred consideration in the form of preference shares, represents a multiple of 27 times CBAM's statutory operating profit after tax for the 2024 financial year.

In the 12 months to 31 July 2024, Close Brothers said its statutory pre-tax profit rose 27 per cent year-on-year to £142 million; adjusted earnings per share surged 38 per cent to 76.1 pence per share. Close Brothers Asset Management total assets rose 18 per cent to £20.4 billion. 

The group’s Common Equity Tier 1 ratio was 12.8 per cent at the end of July this year, compared with 13.3 per cent at the end of July 2023.

Shore Capital said it keeps a “buy” recommendation on Close Brothers’ shares with a fair value of 365p, implying 57 per cent upside. “This [recommendation] includes an assumption that the group will need to set aside circa £450 million to cover remediation costs associated with UK motor finance, which we believe can be covered from capital resources resulting from ongoing management action.”

Recent months have been tough on Close Brothers. It is handling a regulatory probe into its motor finance businesses over commissions that helped car dealers earn thousands of pounds for themselves while allowing banks to push up the interest rates which they offered buyers (Bloomberg, 7 January, others). The practice was banned in 2021. On 25 October last year, a Court of Appeal ruling in London put a spotlight on how lenders had paid car dealers to sell their loans to motorists, often without a client's knowledge.