Close Brothers shares plunge on new ‘material’ motor finance hit
Shares in FTSE 250 lender Close Brothers sank on Thursday after the firm said it expects to increase its provisions for the motor finance scandal.
The bank – which has a £9.5bn loan book with over 20 per cent car finance loans – sunk nearly ten per cent to 472.60p.
It follows the Financial Conduct Authority announcing on Tuesday it expects its redress programme to cost up to £11bn and cover 14.2m agreements dating back to 2007.
But analysts have raised concerns over the “forensic” level of governance expected to be on lenders throughout the scheme as they attempt to prove their deals were not “unfair”.
The FCA’s scheme will be built upon what agreements were deemed “unfair” with the watchdog outlining commissions equal or greater to 35 per cent as “high”.
Close Brothers said: “While uncertainty in relation to the outcome of the consultation remains, the group’s initial assessment is that if implemented in its current form, the proposed scheme is likely to result in a material increase in its existing provision of £165 million.
“This remains subject to ongoing review of the proposal and analysis of its potential impact on the group.”
Close Brothers in a ‘messy’ year
Close Brothers posted full-year results for the financial year ending July 31 last week and revealed a £122m pre-tax loss. This followed on from a £133m loss the year prior.
The firm has set aside £165m in provisions for the car finance saga but announced a fresh £33m charge for customer dress during its results.
Gary Greenwood, equity analyst at Shore Capital, said the full-year performance were “messy” due to various disposals and exits throughout the year.
The specialist lender’s share price has swerved between a low of 185p and peak of 555p over the last 12 months.
The expectation to increase provisions follows suit with Lloyds Banking Group – which owns the UK’s largest motor finance lender Black Horse – which said on Thursday it would “likely… be required” to increase funds.
Lloyds was down 2.6 per cent to 84.14p.