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Investing.com -- Close Brothers (F:CBRO) Group plc reported a third-quarter decline in its loan book and no updates on motor finance provisions Wednesday, sending its shares down more than 2%, despite a capital ratio that exceeded expectations.
The banking division’s loan book contracted 0.9% quarter over quarter and 3.5% year to date.
The decline was attributed to higher repayments in Property, reduced activity in selected Asset Finance segments, and intensified competition in Premium Finance.
Growth in Invoice Finance and a recovery in Motor Finance, following a temporary lending pause in October 2024, partially offset the weakness.
Annualized loan growth for the first nine months was down approximately 4.7%, compared with a consensus forecast of a 0.2% decline for fiscal 2025.
The year-to-date net interest margin was 7.1%, down from 7.3% in the first half but slightly ahead of the 7% consensus.
The group’s CET1 ratio rose approximately 180 basis points from the second half of the fiscal year to 14%.
The increase was driven by profit generation, a reduction in risk-weighted assets in the loan book, and a full removal of operational risk RWAs related to Close Brothers Asset Management, following approval from the Prudential (LON:PRU) Regulation Authority. That approval added about 25 basis points to the ratio.
The reported CET1 ratio includes fewer than 10 basis points of IFRS 9 transitional relief. Excluding this, the CET1 ratio remains at 14%, exceeding the company’s 12% to 13% target range and the 12.8% consensus forecast for fiscal 2025.
The company maintained its target of £25 million in annualized cost savings by the end of the fiscal year.
Underlying banking costs are projected to rise approximately 1% year over year, consistent with prior guidance and a consensus forecast of 0.6%.
The annualized cost of risk declined to 0.9%, down from 1.0% in the first half. The company maintained its guidance for a cost of risk below 120 basis points for the year, compared with a consensus estimate of 100 basis points.
There were no further updates to the £165 million provision for motor finance commission costs and the £8 million set aside for related complaints handling and legal expenses, which were announced in the first half.
Winterflood, the company’s market-making business, reported an operating profit of £0.4 million for the third quarter, following a £0.8 million loss in the first half and a £1.7 million profit in the same quarter last year. Fiscal year consensus expectations for Winterflood stood at approximately break-even.
Total (EPA:TTEF) funding rose 1.5% from the previous quarter to £12.9 billion, supported by higher retail deposits.
The company did not disclose its third-quarter liquidity coverage ratio but said liquidity remained “substantially above” regulatory requirements. The second-quarter figure was 953%.
Group central costs were £13.9 million in the quarter, compared with £11.6 million a year earlier and £28.4 million in the first half. Annualized net expenses year to date are approximately £56 million, in line with the company’s guidance of £55 million to £60 million.
The company now expects the CET1 ratio to finish the year above its 12% to 13% target range, revised from prior guidance indicating it would be at the upper end.