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Close Brothers has agreed to sell its wealth management unit to Oaktree in a deal worth up to £200mn, as the lender seeks to bolster its capital position ahead of the outcome of a probe into motor financing deals.
The sale, which is expected to complete early next year, is part of a £400mn capital plan that the FTSE 250 bank launched in March to prepare for the impact of the review, which analysts estimate could cost the banking industry up to £16bn.
Close Brothers, which has the most relative exposure to car finance, also suspended its dividend following the announcement of the probe in January.
The deal is expected to complete early next year and includes £28mn of contingent deferred preference shares. The bank intends to conserve the roughly £172mn cash proceeds to “strengthen” its capital base and “improve its position to navigate the current uncertain environment”.
UK regulators are investigating potential mis-selling in the car finance industry linked to historic discretionary commissions agreements on car loans, a practice that was banned in 2021. The Financial Conduct Authority is concerned that the practice may have given lenders and dealers an incentive to charge customers higher interest rates.
“The FCA’s review of historical motor finance commission arrangements announced in January introduced significant uncertainty for the group,” said Close Brothers chief executive Adrian Sainsbury. “Against this backdrop, our top priority has been to further strengthen our capital position and protect our valuable franchise.”
An update from the FCA on the status of the probe was recently delayed from September until May next year after the watchdog said it struggled to gather the relevant data from companies on time.
Close Brothers’ chair Mike Biggs said the deal would increase the bank’s common equity tier one ratio, a measure of financial resilience, by approximately 100 basis points, adding that this would help deliver a previously outlined plan to strengthen the bank’s capital.
The banking group said that to realise the wealth management unit’s full potential, it would have needed to pump more investment into the division and potentially make acquisitions to remain competitive as the industry undergoes consolidation.
The group said that selling its wealth manager at this stage “allows Close Brothers to realise a competitive valuation” while enabling the company to focus on its “core lending business”.
Oaktree managing director Federico Alvarez-Demalde said the asset manager was “delighted” to partner with Close Brothers. “The business is well known for its client-centric culture, which we absolutely intend to preserve and nurture,” he added.
Close Brothers has not yet taken a provision to account for the potential redress costs of the car finance probe. However, the group disclosed in its annual results on Thursday that it had already spent almost £7mn on “complaints handling and other operational costs associated with the FCA’s review” and expects the amount to be between £10 and £15mn in the next financial year.
Those expenses affected the group’s pre-tax profits, which fell 35 per cent year on year to 142.2mn. The group said its asset management business had seen net inflows rise 8 per cent and that its assets under management had grown 18 per cent to £19.3bn in the period.
Close Brothers’ securities business Winterflood, however, posted an operating loss of £1.7mn in the period due to “unfavourable” market conditions.
Shares in Close Brothers were down about 1 per cent by mid-morning trading on Thursday.
https://www.ft.com/content/289dd9a7-3c21-44d8-9559-50b0fcb17f99
