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Investing.com -- Fitch Ratings has downgraded Close Brothers (F:CBRO) Group PLC (LON:CBRO) and its operating bank Close Brothers Limited to ’BBB’ from ’BBB+’ with a Negative outlook, removing them from Rating Watch Negative.
The downgrade reflects challenges to Close Brothers’ business model, which has faced pressure from uncertainty surrounding the review into historical motor finance commission arrangements. This uncertainty is expected to continue into 2026, as the Financial Conduct Authority (FCA) plans to consult on a customer redress scheme by late 2025.
Fitch noted that the removal from Rating Watch Negative reflects reduced immediate risks following a UK Supreme Court ruling that narrowed the legal basis for customer redress.
The rating agency cited weakened financial performance due to lower business volumes and loan growth, along with multiple business disposals that have reduced the group’s scale and diversification. Recent disposals include Winterflood (securities trading), a brewery business, and retail premium finance operations, following the earlier sale of its asset management business.
The Negative outlook reflects uncertainties around the group’s restructuring, the potential impact of the FCA’s redress scheme, and risks to profitability and capital.
Close Brothers’ asset quality is weaker than peers, with an impaired loans ratio of 7.6% at the end of January 2025, up from 7.1% at the end of the previous fiscal year. Even excluding highly provisioned Novitas loans, the ratio would still be over 5% by the end of FY26.
Fitch expects operating profitability to remain under pressure below 1.5% of risk-weighted assets in FY25-FY26, weaker than pre-FY23 performance due to tighter margins, higher costs, and potential redress expenses.
The sale of Winterflood is expected to provide a 30 basis point increase to Close Brothers’ common equity Tier 1 (CET1) ratio upon completion, with the pro-forma CET1 ratio increasing to 14.3% based on end-April 2025 financials. Fitch estimates that an additional £100 million in redress costs would reduce the CET1 ratio by about 100 basis points.
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