Table of Contents
- FCA investigation into car finance firms could lead to another PPI-style scandal
- Close Brothers has agreed to sell its asset management division to Oaktree
Close Brothers has sold its wealth management business in a £200m deal, while again flagging uncertainty over the potential financial impact of a review of the car finance sector.
The group has been shoring up its balance sheet amid a regulatory investigation into the historic sale of loans by UK car finance companies, following a surge in complaints from consumers whose compensation claims were rejected.
Many analysts predict the investigation could lead to another PPI-style scandal, with banks, building societies and credit providers paying billions of dollars in damages.
RBC believes the industry could owe between £6bn and £16bn in refunds to customers, while Jefferies thinks it could be £13bn.
Investigation: The Financial Conduct Authority launched an investigation into the historic sale of loans by UK car finance companies earlier this year
Close Brothers, which was forced to forgo dividends this year, said the FCA review had “introduced significant uncertainty”, in part because “the timing, scope and quantum of any potential financial impact on the group cannot be reliably estimated at present”.
As a result, the commercial banking business has placed greater emphasis on improving its capital position.
It has suspended dividend payments since February and has increased its loan portfolio more selectively by “optimizing” its risk-weighted assets.
The London-listed company also announced on Thursday a deal to sell Close Brothers Asset Management to Oaktree Capital Management for up to 200 million pounds following a strategic review.
Close Brothers intends to retain initial cash proceeds worth approximately £172m from the deal, which it said will strengthen its capital base and “improve its position to navigate the current uncertain environment”.
Mike Biggs, chairman of Close Brothers, said the sale “represents competitive value for our shareholders, allowing us to simplify the group and focus on our core lending business.”
Close Brothers made the announcement alongside the publication of its annual results, which showed the company’s adjusted operating profits rose by half to £170m in the year ending in July.
Earnings were mainly driven by the non-recurrence of significant impairment charges related to its specialist lender, Novitas.
Combined with modest revenue growth, this more than offset a 10 percent increase in operating expenses caused by higher employee costs and continued investment in its banking operation.
Adrian Sainsbury, chief executive of Close Brothers, said: “We remain encouraged by the strength of demand in our banking business and see good growth prospects for the group.”
Sainsbury began taking medical leave from the company on Monday, with Close Brothers chief financial officer Mike Morgan taking over his responsibilities in the meantime.
Close Brothers Group shares rose 3.7 per cent to 547 pence on Thursday morning, making them one of the biggest gainers in the FTSE 250 index.
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