Close Brothers axes dividend as automobile loans disaster deepens

Shares in considered one of Britain’s oldest service provider banks crashed to their lowest degree for practically 30 years because it reels from an investigation into the automobile finance market.

On a brutal day for the corporate and its buyers, Close Brothers tumbled 22.5 per cent, or 89.6p, to 308.4p after it scrapped its dividend and warned of ‘significant uncertainty’ over the regulatory probe into the business.

Shares within the group, which dates again to 1878, are down by 60 per cent for the reason that Financial Conduct Authority (FCA) final month launched an investigation into the potential mis-selling of automobile loans.

That has wiped £690million off its worth and left the inventory at its lowest degree since 1996.

Concerns are mounting that Close Brothers and others within the business, together with Lloyds, Barclays and Santander, face a hefty invoice if the FCA guidelines clients had been charged an excessive amount of for automobile loans between 2007 and 2021.

Investigation: Close Brothers tumbled 22.5% after it scrapped its dividend and warned of ‘significant uncertainty’ over the regulatory probe into the business

The instances encompass ‘discretionary commission arrangements’ utilized by the motor finance business earlier than they had been banned in 2021.

Martin Lewis, the buyer champion behind Money Saving Expert, has warned that lenders may face an analogous invoice to the £50billion in prices and compensation they paid over the mis-selling of cost safety insurance coverage (PPI) scandal. 

Russ Mould, funding director at AJ Bell, stated: ‘Banking has a habit of being embroiled in scandals. 

Just as the dust settles on one scandal, along comes another, and that cycle has been repeating for decades.

‘It looks like we’re on the cusp of a brand new one and the potential fines and compensation might be large.’

In an replace yesterday, Close Brothers stated: ‘There is significant uncertainty about the outcome of the FCA’s overview, and the timing, scope and quantum of any potential monetary impression on the group can’t be reliably estimated at current.

‘The board considers it prudent for the group to further build capital strength.

‘Therefore, the group will not pay any dividends for the current financial year, and the reinstatement of dividends in the 2025 financial year and beyond will be reviewed once the FCA has concluded its process and any financial consequences for the group have been assessed.’

City analysts at Berenberg stated: ‘Clearly, this is a significant blow for Close Brothers which has historically prided itself in a sustainably growing dividend.’

Car loans make up a few fifth of lending at Close Brothers – nearly £2billion.

Although that is dwarfed by the £15billion of loans Lloyds made, City analysts assume it’s in a greater place to soak up the invoice on account of its measurement.

Shares in Lloyds, which owns Black Horse, the UK’s largest automobile finance lender, are down round 12 per cent for the reason that FCA probe was launched.

Announcing the investigation on January 11, the FCA stated: ‘If we find there has been widespread misconduct and that consumers have lost out, we will identify how best to make sure people who are owed compensation receive an appropriate settlement in an orderly, consistent and efficient way.’

Analysts at Royal Bank of Canada imagine the business may face a invoice of £16billion, with Close Brothers in line for a £200million hit and Lloyds £2billion.

Insisting ‘there is no certainty regarding any potential financial impact as a result of the FCA’s overview’, Close Brothers stated that the ‘business continues to perform well’.

The firm expects income of £94million for the six months to the tip of January, in contrast with £117.5million in the identical interval a yr earlier.