Close Brothers’ shares soared as trading commenced on Monday, following the bank’s victory in a pivotal motor finance case at the Supreme Court.
The FTSE 250 lender’s stock surged by over 25% during the morning session, reaching a peak of 500p, as reported by City AM.
Close Brothers win
Investors flocked to purchase shares after the Supreme Court upheld Close Brothers’ appeal, reversing an October verdict that deemed it illegal for banks to pay commission to car dealers without obtaining informed consent from customers.
In the aftermath of the initial ruling, Close Brothers’ shares plummeted to a low of 185p.
However, the Supreme Court ruled on Friday that claims against the lenders could not prevail based on principles of fairness, known as equity, or tort, which pertains to any wrongful acts warranting compensation.
Matt Britzman, senior equity analyst at Hargreaves Lansdown, commented: “Friday’s Supreme Court ruling on car finance commissions is a win for UK lenders, bringing some much-needed legal certainty.”
Close Brothers had earmarked £165m for provisions, but analysts had cautioned that this figure could escalate rapidly if the banks were dealt an unfavourable ruling.
Moody’s speculated that the banking sector could be staring down the barrel of a £30bn blow in a worst-case scenario, while one HSBC analyst suggested a staggering £44bn figure.
Regulator explores redress
The Financial Conduct Authority confirmed on Sunday that it will explore the possibility of implementing an industry-wide redress scheme.
The City watchdog is gearing up to launch a consultation by early October, with the potential redress bill estimated to be in the region of £9bn to £18bn.
Close Brothers has expressed that “remains uncertainty as to the range of outcomes, and the financial impact to the group, including any impact on its provisioning assessment” pending the outcome of the regulator’s consultation.
The firm stated: “We look forward to engaging with the FCA (Financial Conduct Authority) in respect of the consultation.”
However, the Supreme Court’s recent ruling in favour of a claimant, deeming the commission “unfair” under the Consumer Credit Act, has cast a shadow of doubt over the situation.
Britzman commented: “It’s not a home run as the FCA announced plans to explore a compensation scheme that could cost the industry £9–18bn.”
In related news, shares of Lloyds Banking Group – the parent company of major vehicle finance provider Black Horse – saw an uptick of over five per cent on Monday.
Lloyds is at the forefront of provisions, having earmarked £1.2bn, while Santander and Barclays have set aside £295m and £90m respectively.
