Close Brothers Group PLC (LSE:CBG) shares dropped 5% this morning after the lender warned that its net interest margin will dip below 7% in the year ahead, raising concerns about future profitability as it works through legacy issues.
The bank, which has been restructuring after a string of setbacks, said the NIM, the gap between what it earns on loans and pays on deposits, was 7.2% last year.
The figure has been one of the group’s main supports through a period marked by large provisions, litigation and disposals.
For the year to July, Close Brothers reported a pre-tax loss of £122 million, compared with a £133 million profit the year before.
Adjusted operating profit from continuing operations dropped 14% to £144 million. Results were weighed down by a £165 million provision for motor finance commission claims, a £33 million charge for customer redress, and a £30 million hit from exiting its vehicle hire arm.
Mike Morgan, chief executive, said the group had taken “decisive action” to reposition itself. It has sold its asset management and Winterflood businesses, cut £25 million in costs, and is targeting at least £20 million of additional annual savings a year over the next three years.
The loan book contracted 4% to £9.5 billion after a pause in motor lending, while the core equity tier one capital ratio, a key measure of financial strength, rose to 13.8%, or 14.3% pro forma for the Winterflood sale.
Morgan said the group was on “the right path” and aimed to return to double-digit returns once there is clarity on the Financial Conduct Authority’s consultation on motor finance redress.
Dividend payments remain suspended until the outcome of that review is known.