The Lloyds Banking Group share price didn’t take the hammering we feared as a result of the car loan mis-selling scandal. In fact, Lloyds shares are up 52% so far in 2025.
But fellow lender Close Brothers Group (LSE: CBG) was exposed to the risk of going bust. And the share price crunched down 11% when the London stock market opened this morning (30 September). But it did bounce back, and at the time of writing we’re looking at a 4% drop on the day.
It was full-year results time, and a reported operating loss of £122.4m did the damage. It led to a painful 99.8p loss per share from continuing operations, following a positive 56.2p a year previously.
A year of change
CEO Mike Morgan stressed the bank’s refocus, highlighting “the actions we have taken to strengthen our capital position and simplify the business“.
The company has sold its Close Brothers Asset Management, Winterflood, and Brewery Rentals businesses. The result, the boss said, means the bank has “delivered £25 million of annualised cost savings and will deliver at least c.£20 million of additional annualised savings per annum in each of the next three years“.
Looking at the two banks, one huge and one tiny, highlights some key contrasts. One of them suprised me, as I checked the latest share price charts. I knew Lloyds was up around 50% so far in 2025, and I guessed Close Brothers wouldn’t have come close. But no, it’s made double the gain, up 101% year to date.
Risk versus reward
Looking at the longer-term change shows a very different picture. Lloyds shares have trebled over the past five years, while Close Brothers investors are sitting on a 53% loss. So, what does this really tell me?
I’ve been drawn to smaller bank stocks in the past, and I’ve come close to investing in so-called challenger banks before. They can be nimbler, and can dive into opportunities faster than the big players. And they can take advantage of deals too small to make much difference for banks like Lloyds.
The big risk, of course, is that they don’t have anywhere near the financial muscle to handle major threats easily. While the car loan thing could have caused a lot more pain for Lloyds, it was never going to come close to bringing the bank down completely.
What next?
Looking forward from here, I’m actually liking what I see at Close Brothers. The company posted an adjusted operating profit of £144m (from continuing operations). And it ended the year with a CET1 capital ratio of 13.8%, or a pro-forma 14.3% after the Winterflood disposal.
The bank might have squeeked through a tight spot. But its liquidity seems healthy enough. And the CEO said: “I am confident we are on the right path and that we will return this business to double-digit returns.“
I want to wait until the details of the FCA’s car loan redress plans emerge. But if that’s not too costly, I’ll consider a modest investment in Close Brothers to go with my Lloyds holding.
