Close Brothers has allocated up to £165 million ($205 million) to address costs associated with motor finance claims, marking the first time the British lender has assessed the potential impact of a ruling on unlawful commissions. In a scenario that could evolve into one of the UK's most expensive consumer banking scandals, the company was found responsible by the Court of Appeal in October for "hidden" commissions after an inquiry into past sales. Close Bros was granted permission to challenge the ruling in December.
The provision revealed on Wednesday is projected to lower the company's CET1 ratio, a critical financial strength indicator for lenders, to 12%, down from the 13.5% it reported at the end of December. Despite this reduction, the ratio would still significantly exceed the regulatory mandate of 9.7%.
Following the announcement, Close Bros' shares declined by 1% to 361 pence by 0849 GMT after an initial surge at the market opening. Anticipation of a significant payout has mounted, fueled by Britain's Finance Minister Rachel Reeves calling on regulators to remove barriers to growth by curbing excessive risk management.
Regulators are striving to steer towards an outcome that avoids irreversible risks for lenders, noted Panmure Liberum analyst Rae Maile. Maile highlighted that Close Bros' strategic measures to control its capital – such as limiting lending, divesting assets, suspending dividends, and reducing expenses – have mitigated potential impacts.
The London-headquartered company anticipates its capital ratio to rise to around 13% by year-end, aligning with previous forecasts.
($1 = 0.8030 pounds)