Close Brothers' shares surge as group says £320m car finance hit can be 'comfortably absorbed'
Close Brothers shares surged this morning after posting an update on the motor finance redress scheme announced by the City watchdog last week. Close Brothers expects the Financial Conduct Authority's redress scheme to cost it in the region of £320 million, which it said was 'broadly similar' to what it expected. It added that it could be 'comfortably absorbed by existing capital resources.'At the end of January, the business estimated the financial impact of the motor finance scandal to cost it £294million. But, the group said the final outcome would be 'dependent upon any potential further legal, regulatory or industry developments (including any legal challenge of the scheme by various parties)'. Following the FCA’s publication of the final rules for the redress scheme, many analysts expect further legal battles on the horizon after the scheme was split into two separate parts for pre-2014 and post. On the up: Close Brothers shares rose 22% on Wednesday after it posted an update regarding the motor finance scandal The inclusion of deals dating back to 2007 in the redress underscores a major industry contention over the motor finance scandal.Benjamin Toms, an equity analyst at RBC, said: 'We think that it is highly likely that at least one, if not multiple, of the many interested parties will ask the administrative courts to review the scheme.'Close Brothers said today: 'The group will continue to closely monitor any further legal, regulatory and industry developments and is considering its next steps.'The scheme is anticipated to hit Close Brothers' CET1 ratio – a key metric indicating its financial health – by 25 basis points, taking it to 14 per cent. This remains ahead of the firm's 12 to 13 per cent target. Close Brothers shares were up 22.81 per cent or 88.89p to 478.49p on Wednesday morning, having risen nearly 70 per cent in the past year. The FCA redress scheme covers around 720,000 loans written by Close Brothers between April 2007 and November 2024. Of these, Close Brothers said around 640,000 related to discretionary commission arrangements, with a further 80,000 potentially captured under other criteria set by the FCA. The banking group said it expected an average payout of around £500 per customer, which is below the FCA's industry estimate of £829, reflecting smaller loan sizes and lower commission levels in its book.It also expects around 75 per cent of eligible customers to claim. A 5 per cent change in that rate would move the total cost by roughly £18million, it said.Implementation costs are estimated at £66million, excluding £14million already incurred. Payments are expected to run from summer 2026 to the end of the 2027 calendar year, according to Close Brothers.Today's update from Close Brothers follows the publication of a note from short-seller Viceroy, which accused Close Brothers of under-provisioning and 'systematically misrepresenting' it exposure to the motor finance debacle. Viceroy said the firm will have to at least double its £300million provision for Britain’s car finance scandal. Larger rival Lloyds Banking Group has set aside £1.95billion while Santander has taken a £478million hit and Barclays says it is on the hook for £325million.Viceroy is understood now to be sitting on a profit of £2.9million after Close Brothers' stock fell 19 per cent on the day the claims became public. DIY INVESTING PLATFORMSAJ BellAJ BellEasy investing and ready-made portfoliosHargreaves LansdownHargreaves LansdownFree fund dealing and investment ideasinteractive investorinteractive investorFlat-fee investing from £4.99 per monthFreetradeFreetradeInvesting Isa now free on basic planTrading 212Trading 212Free share dealing and no account feeAffiliate links: If you take out a product This is Money may earn a commission. These deals are chosen by our editorial team, as we think they are worth highlighting. This does not affect our editorial independence.Compare the best investing account for you
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Close Brothers' shares surge as group says £320m car finance hit can be 'comfortably absorbed'
