Financial troubles in the motor industry may be propelling Close Brothers as the next potential takeover candidate.
Motor Finance Turmoil Threatens Close Brothers' Future
Close Brothers, once a formidable player in the motor finance arena, finds itself squarely in the crosshairs of regulatory and financial peril. Pressure from banking behemoths eyeing expansion and mounting implications of a meticulous six-year legal battle may push the lender towards a takeover.
The company's shares have taken a heavy blow, with the stock price diving to 185p in November. It has since regained a portion of its losses, hanging around 368p, nevertheless, reflecting a dismal 15% decline for the year. The downturn can primarily be attributed to Close Brothers' extensive exposure to a turbulent motor finance market.
In the first week of April, the embattled firm took its fight to the UK Supreme Court, contesting an earlier Court of Appeal decision that deemed it unlawful for banks to hand out commissions to car dealers without customers' explicit consent. With the legendary law firm Slaughter and May on their side, Close Brothers hoped to shore up their defenses via this legal showdown, following the departure of Leeds-based Walker Morris.
Moody's analysts, Alessandor Roccati and Simon James Robin Ainsworth, warn that Close Brothers may find itself as a takeover target if regulatory investigations into their motor finance business result in financial penalties that erode their solvency. Such a takeover could send shockwaves throughout the banking landscape, as Close Brothers' loan book inched towards the £10bn mark, accompanied by deposits of around £9bn.
analysts speculate Close Brothers might be next on the takeover chopping block as the motor finance scandal intricacies exert pressure. However, a potential acquisition would likely wait for the Supreme Court's July verdict on motor finance regulation.
"The risk of potentially significant liabilities related to motor finance commissions would likely deter a prospective buyer until additional clarity emerges," Roccati and Ainsworth stated.
Rise of the Banking Titans
Banking behemoths, sensing opportunities to expand their market share, have embarked on a series of takeovers of challenger banks in the past year. Tesco Bank was acquired by Barclays for £600m, and Natwest picked up Sainsbury's for approximately £1.4bn. Top-tier players, including Barclays and Santander, are also rumored to have an interest in acquiring high-street lender TSB.
The looming potential of a Close Brothers takeover would further reduce competitive pressure within the industry, reinforcing the grip of the Big Five - Barclays, HSBC, Lloyds, Natwest, and Nationwide. However, investors and pundits eagerly await future developments in the Supreme Court's deliberations on motor finance regulation.
Precarious Balance
"Close Brothers' specialized expertise could make it an attractive target, and its high cost base would provide an enticing opportunity for potential buyers to extract synergies," Roccati and Ainsworth said. The FTSE 250 firm's core segments include banking and securities, with its Securities Arm – Winterflood – posting a £400m profit in the third quarter of 2025, after benefiting from market turbulence triggered by President Donald Trump's controversial tariff agenda in April.
While a formal takeover bid has yet to materialize, analysts caution that any bid would need to factor in the Supreme Court's eventual ruling on motor finance commission practices, expected in July, before proceeding. The unpredictability of the regulatory landscape, combined with the financial constraints wrought by the motor finance scandal, leaves Close Brothers teetering precariously at the edge of possible regulatory requirements.
The financial turmoil surrounding Close Brothers' motor finance operations has sparked speculation among analysts about potential takeovers, with the embattled firm potentially becoming a target for banking titans looking to expand their market share. Close Brothers' high cost base and specialized expertise make it an attractive target for potential buyers, who could extract synergies and benefit from its profits in sectors like investing and securities. However, any takeover bid would need to take into account the yet-to-be-determined ruling on motor finance commission practices by the Supreme Court, scheduled for July.
