Shares in one of Britain’s oldest commercial banks have fallen to their lowest level in almost 30 years as it reels from an investigation into the car finance market.
In a brutal day for the company and its investors, Close Brothers fell 22.5 per cent, or 89.6p, to 308.4p after it scrapped its dividend and warned of “significant uncertainty” over the regulatory investigation in the industry.
Share in the group, which dates back to 1878, are down 60 per cent since the Financial Conduct Authority (FCA) last month launched an investigation into the possible mis-selling of car loans.
This has wiped £690m off its value and left the stock at its lowest level since 1996.
Concerns are growing that Close Brothers and others in the industry, including Lloyds, Barclays and Santander, will face a hefty bill if the FCA rules customers were overcharged for car loans between 2007 and 2021.
Research: Close Brothers fell 22.5% after canceling its dividend and warning of ‘significant uncertainty’ over regulatory probe into the industry
The cases revolve around ‘discretionary commission arrangements’ used by the car finance industry before its ban in 2021.
Martin Lewis, the consumer advocate behind Money Saving Expert, has warned that lenders could face a bill similar to the £50bn in costs and compensation they paid over the payment protection insurance mis-selling scandal. (PPI).
Russ Mould, investment director at AJ Bell, said: ‘Banking has a habit of becoming embroiled in scandals.
Just when the dust settles after one scandal, another comes along, and that cycle has repeated itself for decades.
“We seem to be on the cusp of a new situation and the potential fines and compensation could be enormous.”
In an update yesterday, Close Brothers said: “There is significant uncertainty over the outcome of the FCA review, and the timing, scope and magnitude of any potential financial impact on the group cannot be reliably estimated at this time. moment”.
‘The board considers it prudent for the group to continue strengthening its capital.
“Therefore, the group will not pay any dividend for the current financial year, and the reinstatement of dividends in financial year 2025 and beyond will be reviewed once the FCA has concluded its process and the financial consequences for it have been assessed. the group”.
Analysts at Berenberg City said: “Clearly, this is a significant blow to Close Brothers, which has historically prided itself on a sustainably growing dividend.”
Car loans account for around a fifth of loans at Close Brothers – almost £2bn.
Although this figure is dwarfed by the £15bn in loans provided by Lloyds, City analysts believe it is better placed to absorb the bill due to its size.
Shares in Lloyds, owner of Black Horse, the UK’s largest car finance lender, are down around 12 per cent since the FCA investigation was launched.
Announcing the investigation on January 11, the FCA said: “If we find that there has been widespread misconduct and that consumers have lost out, we will identify the best way to ensure that people who are owed compensation receive compensation. appropriate agreement in an orderly, consistent and efficient manner.’
Analysts at Royal Bank of Canada believe the industry could face a £16bn bill, while Close Brothers could take a £200m hit and Lloyds a £2bn hit.
Insisting that there is “no certainty over any potential financial impact as a result of the FCA review”, Close Brothers said “the business continues to perform well”.
The company expects profits of £94m for the six months to the end of January, compared with £117.5m in the same period a year earlier.