Close Brothers shares slide as net interest margin forecast disappoints

By DhanushVignesh Babu

(Reuters) -British lender Close Brothers on Tuesday warned its fiscal 2026 net interest margin would come in below analysts’ forecasts, citing changes in the mix of its loan book.

The warning sent Close Brothers' shares down 11.5%.

The lender is restructuring by shedding non-core or underperforming businesses, with the exit from its Vehicle Hire arm as the next step in the process.

"Whilst some of these actions have an upfront financial impact on the group, they provide the foundation for the next stage of our journey," CEO Mike Morgan said in a statement.

The company said it expects net interest margin for the year ending July 2026 to be slightly below analysts' expectations of 7% according to a company-compiled consensus, while. It also forecast an annual operating loss of about 50 million pounds ($67.22 million), bigger than a 70 million pound profit view based on the same consensus.

Shares in the company slumped as much as 11.5% to 439 pence in morning trade, the second top loser on the FTSE mid cap index.

The company had set aside up to 165 million pounds in provisions to cover potential operational and legal costs, and said on Tuesday it expects handling costs in relation to motor finance commissions to be single digit millions of pounds in fiscal 2026.

The UK Supreme Court’s decision in August to overturn a landmark ruling requiring motor finance brokers to fully inform customers about commissions when taking out car loans was favourable for Close Brothers and other lenders, easing concerns over potential liabilities from historic motor finance commission arrangements.

Close Brothers said on Tuesday that it made annualised cost savings of 25 million pounds at the end of fiscal 2025 and is set to deliver at least about 20 million pounds a year over the next three years. 

The company reported an adjusted operating profit from continuing operations of 144.3 million pounds for the year ended July 31, above analysts' estimates of 125 million pounds, according to a company-compiled consensus.

($1 = 0.7438 pounds)

(Reporting by DhanushVignesh Babu in Bengaluru; Editing by Sherry Jacob-Phillips, Mrigank Dhaniwala and Susan Fenton)