8:28 am, February 12, 2025
Close Brothers is to earmark £165m to cover the costs of investigations into the potential mis-selling of car finance, as the motor finance scandal rumbles on.
In announcement via the London Stock Exchange (LSE) this morning (Feb 12), the lender said it will ‘recognise a provision in the H1 2025 financial statements in relation to motor commissions of up to £165m’.
The sum is being set aside to cover estimates for ‘potential operational and legal costs’ along with estimates ‘for potential remediation for affected customers’, it said.
Close Brothers added that there is ‘significant uncertainty’ as to the outcomes from the Financial Conduct Authority’s (FCA) review of motor finance commissions, and more cash may have to be set aside.
The statement also noted that its CET1 (Common Equity Tier 1 capital) stood at 13.5% at the end of December 2024, but this provision will lover this by around 150bps ‘on a pro-forma basis to 12.0%, significantly above our applicable regulatory requirement of 9.7%’, the company said.
Close Brothers is at the centre of a looming crisis facing the motor finance industry, with major lenders in the sector on the hook for potentially billions of pounds’ worth of compensation over motor finance deals with hidden commission payments.
The Court of Appeal in London ruled last October that it was unlawful for car dealers to receive commission on motor finance from lenders without a customer’s informed consent.
The court decision opened the door for a potential fresh wave of complaints from consumers who think they may have been mis-sold car finance in previous years.
Close Brothers disagrees with the ruling and has said it intends to appeal in the Supreme Court.
But it has been boosting its capital strength ahead of a possible big compensation bill and last September agreed to sell its wealth management division for about £200m.
The statement added: ‘We have completed preparations for a significant risk transfer of assets in Motor Finance and continue to analyse any adjustments to the timing and structure of a potential transaction in light of the Court of Appeal judgment and our ongoing appeal to the Supreme Court.’
The announcement to the LSE also included an update on Close Brothers’ financial performance.
In the six months to January 31, 2025, its banking division’s loan book fell to £9.8bn from £10.2bn at the end of October 2024. This was driven by seasonality and selective lending.
Adjusted operating profit is expected to be £104m for the first six months, excluding the £165m motor finance provision.
Adjusted operating profit it expected to be around £75m.
News of Close Brothers’ £165m car finance provision comes nearly a year after Lloyds Banking Group said it would put aside £450m to deal with the FCA investigation into motor finance.
