Close Brothers gets new boss amid looming crisis for car finance industry

Adrian Sainsbury, the chief executive of motor finance giant Close Brothers, has stepped down after a period of medical leave and been replaced by Mike Morgan, a senior executive at the bank.

Mr Sainsbury quit on January 6 after taking medical leave in September, with finance director Mr Morgan being made chief executive on a permanent basis.

Mr Morgan takes the helm at a pivotal time for the motor finance industry, which faces a looming crisis over an upcoming court decision over the potential mis-selling of loans.

Companies like Close Brothers have been setting aside hundreds of millions of pounds over the last year amid estimates that lenders could be forced to foot a £30 billion compensation bill.

This could happen if the UK’s highest court, the Supreme Court, upholds a landmark ruling on hidden motor finance commission arrangements next year.

That judgment, made in the Court of Appeal in October, said it was unlawful for car dealers to gain commission from lenders without receiving the customer’s fully informed consent to the payment.

It means that customers should have been clearly told how much commission dealers would earn, and agree to it.

The decision opened the floodgates to a potential fresh wave of complaints from motorists who think they may have been mis-sold car finance in previous years.

Close Brothers chairman Mike Biggs said Mr Sainsbury had led “a period of significant growth and development for the group, successfully leading the organisation through a challenging period which includes Covid and heightened geopolitical uncertainty”.

He added that Mr Morgan “has made a strong contribution as group finance director for the past five years and has been successfully performing the chief executive role on an interim basis over the last several months”.

“He brings deep knowledge of the organisation and his appointment will ensure continuity in the leadership of the group and delivery of our strategy.”

The Financial Conduct Authority (FCA) is separately investigating whether there was widespread misconduct in the motor finance market and, if so, how affected consumers should be compensated.

The FCA, in a letter to the Supreme Court, estimated that almost 99% of the roughly 32 million car finance agreements between 2007 and 2021 involved a commission payment to a broker.

Credit ratings agency Moody’s also estimated that the compensation costs could hit £30 billion.

Last year, Close Brothers revealed plans to bolster its finances by £400 million and cut costs as it prepares for the impact of compensating people.

The chief executive of Lloyds, which earlier this year said it was setting aside £450 million to cover potential compensation costs, said the uncertainty was one of the biggest problems for the industry.

The Supreme Court is expected to hear the appeal, involving banking groups Close Brothers and FirstRand Bank, around March 2025, with a verdict reached later in the year.

Close Brothers did not give further details on the reason for Mr Sainsbury’s medical leave, but said he is “recuperating well and expected to make a full recovery”.