Close Brothers has exceeded its initial restructuring savings target and now expects to remove more than £60m of annualised costs by the end of its 2027 financial year as lending growth begins to return.
Close Brothers delivered approximately £36m of annualised savings during FY2026, substantially above its latest £25m target. Measures have included lower staff costs, offshoring, reduced adviser and third-party spending, and a smaller property footprint.
Adjusted operating expenses fell 3% to £430.9m from £445.1m. Management expects expenses of approximately £430m in FY2027, with further savings broadly offsetting inflation and selective investment intended to support growth.
Chief executive Mike Morgan said the group had made “significant progress against our strategic priorities to simplify, optimise and grow the business”.
The cost programme sits alongside a repositioning of the lender’s portfolio. Close Brothers has exited or reduced some non-core activities, including selected personal-lines relationships in Premium Finance and its legacy motor-finance operation in the Republic of Ireland.
The overall loan book ended the year broadly flat at £9.5bn, but the underlying book increased by 2% after excluding planned run-off activities. Underlying lending grew by 4% in the second half, and all divisions recorded growth during the final quarter.
Performance varied considerably by segment. The Commercial loan book increased 3% to £4.9bn, including stronger Invoice Finance lending. Motor Finance increased, while Premium Finance fell sharply on a reported basis as the company deliberately reduced selected broker relationships. Property lending declined amid continuing pressure in UK build-to-sell housing.
For FY2027, Close Brothers is guiding to underlying loan-book growth of 5% to 10%, subject to market conditions. Its remaining Premium Finance exit cohort will continue to create a drag on reported growth while the underlying business is expanded elsewhere.
The restructuring programme requires substantial upfront expenditure. Close Brothers expects £30m to £40m of restructuring charges during FY2027 even as annualised savings increase. Management is therefore spending capital in the short term to create a lower recurring cost base.
That approach is widespread across financial services, where established businesses are simplifying products, reducing property, relocating support functions, consolidating technology, and automating administrative work. The commercial objective is to improve operating leverage without weakening the controls required in a regulated lender.
The balance is difficult because functions such as underwriting, collections, complaints, compliance, financial crime prevention, and customer service cannot simply be reduced in proportion to headline cost targets. Specialist lenders also depend on experienced employees who understand narrow markets and long-standing broker or customer relationships.
Capital provides a further constraint. Close Brothers expects its common equity tier one ratio to operate within a medium-term target range of 12% to 13% after absorbing regulatory changes and additional lending. Balance-sheet expansion therefore has to be managed alongside capital requirements rather than pursued solely as a revenue objective.
A leaner cost base can improve returns if loan volumes expand and credit performance remains controlled. It offers less protection if economic conditions weaken materially or restructuring disrupts customer acquisition and service.
FY2026 shows the savings programme running ahead of plan while underlying lending has begun to improve. FY2027 will establish whether those trends reinforce one another: costs need to remain controlled as investment resumes, while the refocused loan book has to produce enough profitable growth to justify the scale and expense of the transformation.
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