Close Brothers Confronts £320m FCA Motor Finance Redress as Legal Disputes Loom
Close Brothers has announced it is well positioned to withstand the financial impact of the City regulator's motor finance redress scheme, while speculation mounts over potential legal disputes. The FTSE 250 lender informed markets that it estimates the cost of the Financial Conduct Authority's (FCA) redress scheme will reach £320 million, aligning closely with the previously anticipated £300 million liability.
Financial Health and Regulatory Impact
The scheme is projected to affect the bank's CET1 ratio, a key indicator of financial stability, by 25 basis points, reducing it to 14 percent. Despite this adjustment, the ratio remains above the bank's target range of 12 to 13 percent, suggesting resilience in its capital position.
However, significant uncertainty persists regarding potential legal challenges to the scheme. Close Brothers emphasized that the final outcome hinges on any potential further legal, regulatory, or industry developments, including possible challenges by various parties.
Analysts Predict Further Legal Battles
Following the FCA's release of final rules for the redress, analysts are forecasting additional legal conflicts. The scheme has been divided into two distinct parts covering pre-2014 and post-2014 agreements, with deals dating back to 2007 included, fueling one of the motor finance scandal's most contentious industry disputes.
Benjamin Toms, equity analyst at RBC, stated: 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. He suggested this response was probably envisaged by the FCA through its establishment of two separate schemes.
Industry-Wide Uncertainty and Responses
Lloyds Banking Group, which owns Britain's largest motor finance lender Black Horse, maintained its £2 billion in provisions last week while highlighting ongoing uncertainty. A statement from Lloyds noted: The ultimate outcome may also differ dependent upon potential actions by various parties, including legal proceedings and complaints.
After Lloyds' third-quarter results in October, finance chief William Chalmers declined to rule out a legal challenge if the scheme is not modified to the bank's satisfaction, stating: I shan't comment any further on what we'll do beyond the consultation process itself.
Close Brothers' Stance and Future Steps
Close Brothers, one of two banks that brought the motor finance dispute to the Supreme Court, stopped short of dismissing a potential further legal confrontation. The group stated it will continue to closely monitor any further legal, regulatory, and industry developments and is considering its next steps.
This situation underscores the broader tensions within the financial sector as institutions navigate regulatory pressures and potential litigation, with the motor finance redress scheme serving as a focal point for ongoing industry challenges.
