Close Brothers is offloading its wealth management division in an effort to shore up cash reserves
Growing uncertainty over the motor finance scandal has prompted a British merchant bank to sell its wealth business for £200m.
Close Brothers, a lender dating from 1878, has agreed to sell its 870-person-strong wealth management division to Oaktree Capital, a group owned by the American billionaire Howard Marks.
Close is one of several lenders facing scrutiny from the Financial Conduct Authority (FCA) over loans it sold to drivers when they were buying vehicles from second-hand car dealers.
The investigation focuses on whether customers were made aware of so-called discretionary fee arrangements, where dealerships would receive more money if they sold loans to customers at high interest rates.
The FCA is concerned that this practice may have meant drivers were mis-sold loans that were not in their best interest.
The situation has been compared to the PPI scandal, with consumer rights campaigner Martin Lewis saying the compensation bill for mis-sold loans could top £10bn.
Uncertainty over whether customers will receive compensation, and how much, has forced lenders including Close to review their financial firepower to ensure they can pay any claims.
Close scrapped a £100m dividend this year to help build its buffers and on Thursday said it would offload wealth manager, Close Brothers Asset Management, because of the “current uncertain environment”.
The sale should help improve the company’s capital buffers and cut the risk that shareholders will be asked to stump up to pay any compensation bill.
Close’s stockbroking business, Winterfloods, could be sold next to give the business even greater breathing space, Panmure Liberum analyst Rae Maile said.
The FCA is still reviewing possible consumer harm over the historic mis-selling of car finance loans, and now expects to announce a decision in 2025 after delaying the review.
Close sold motor finance through a network of 4,000 dealerships across the country and the FCA is probing sales of car loans going back to as early as 2007.
The wealth sale came after Adrian Sainsbury, the company’s chief executive, announced this week that he would be taking a temporary leave of absence from the business owing to health reasons.
Mr Sainsbury, a former Barclays and RBS director, has been replaced on a temporary basis by finance chief Mike Morgan.
Close Brothers Asset Management, as the division being sold is called, caters to wealthy savers and individuals, and employs 870 people across 15 UK offices.
Oaktree plans to change the name and create a new head office for the business in due course.
The US group, which started life as a Wall Street vulture fund before branching out into more mainstream finance, has a UK presence with Sanlam Wealth, which it bought in 2021 for £140m and rebranded as Atomos.
Oaktree’s Federico Alvarez-Demalde said: “The business is well known for its client-centric culture which we absolutely intend to preserve and nurture as we invest in its service capabilities and technology to build a vertically integrated UK wealth business of scale.”
