Close Brothers conserves £400m as FCA’s car finance commission probe rumbles on

  • Car finance specialist shores up its balance sheet with a series of moves
  • Black Horse has already made a £450m provision in wake of FCA’s probe
  • The city regulator is investigating historic discretionary car finance commissions 

Time 7:04 am, March 20, 2024

Close Brothers has joined Black Horse in preparing its balance sheet with hundreds of millions of pounds as the FCA continues its probe into car finance mis-selling.

The popular car finance provider yesterday announced plans to ‘shore up’ its balance sheet by up to £400m in case of a heavy hit from the city watchdog.

The Money Saving Expert website, run by Martin Lewis, said this week that more than 1m car buyers had now used its online system that allows customers to register formal complaints with their lenders.

The Financial Conduct Authority is investigating discretionary commissions payments that saw car finance brokers and dealers create their own interest rates for some customers.

This was banned in 2021 and at the start of the year the FCA launched a probe into car finance sales made between April 2007 and January 2021.

The FCA said last week that some car finance firms were ‘very probably guilty’ of hiding commissions on loans to customers and that it’ll ‘act quickly’.

Close Brothers – one of the largest car finance providers – yesterday told investors it plans to shore up its balance sheet by around £400m in the wake of the inquiry.

Some 25,000 Close Brothers customers have so far registered complaints and the firm currently lends £1.9bn on car finance.

Close did not make a specific provision, but in its half year results, reported yesterday to the Stock Market, the firm explained it had suspended its dividend and taken other actions to boost its ‘core capital’ by £200m. 

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It also scaled back some plans for growth for 2025 and could also scrap its dividend again to save a further £200m.

Adrian Sainsbury, chief executive, said: ‘The FCA’s review of the motor finance industry is ongoing and it would be premature to predict the outcome or estimate the potential impact on the group. 

‘The board however recognises the paramount importance of preparing the group for a range of outcomes from this review. As part of this, the board is taking a number of decisive actions to strengthen our capital position materially. 

‘These include the difficult decision taken last month not to pay dividends in respect of the current financial year. In addition, we are taking steps to optimise our risk weighted assets and reduce costs.

‘While we are working through a current period of uncertainty, the board is taking decisive actions and is confident that the group will emerge well positioned to take advantage of future opportunities.’

Lloyds Banking Group’s Black Horse finance arm has put aside cash in case it faces pay-outs with £450m tucked away.

It’s been estimated by brokers at investment bank Jefferies that the bill for the finance sector could be as high as £13bn.

Close Brothers’ half year report for the diverse banking business showed operating profits before tax for the first half of its 2024 financial year of £93.8m, up from £11.7m in the same period last year.

James Baggott's avatar

James is the founder and editor-in-chief of Car Dealer Magazine, and CEO of parent company Baize Group. James has been a motoring journalist for more than 20 years writing about cars and the car industry.

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