Core Viewpoint - RBC analysts have highlighted that Close Brothers' cost-to-income ratio is significantly higher than its UK mid-cap peers, necessitating urgent cost reduction measures amid ongoing uncertainty in the motor finance sector [1][3]. Group 1: Cost-to-Income Ratio - Close Brothers reported a cost-to-income ratio of approximately 70%, the highest among listed UK mid-cap lenders, compared to 63% at Metro Bank and much lower ratios of 39% and 36% for OSB and Paragon respectively [2]. - RBC believes that if cost reduction measures are effectively implemented, Close Brothers could lower its cost-to-income ratio to around 56%, surpassing the management's target of 59% and aligning more closely with other UK specialist lenders [6]. Group 2: Cost Reduction Measures - Close Brothers has achieved £25 million in annual cost savings and identified an additional £20 million in potential savings over the next three years, but RBC argues these efforts are insufficient [4]. - RBC estimates that Close Brothers could eliminate approximately 7% of its total cost base, equating to about £32 million, within the next 12 months [4]. - The bank's operating model, which includes 25 business units with separate management layers, presents opportunities for efficiency improvements, potentially saving around £5 million [5]. - A proposed reduction in headcount by about 5% could yield an additional £9 million in savings, as Close Brothers has a notably low loans-per-employee ratio compared to its peers [5]. Group 3: Motor Finance Sector - The motor finance division, which constitutes about 20% of Close Brothers' £9.5 billion loan book, is under scrutiny due to increased provisions and regulatory uncertainty [3]. - In October, Close Brothers nearly doubled its motor finance provisions to £300 million following new details from the Financial Conduct Authority regarding a proposed redress scheme, with final guidance expected in early 2026 [7].