Close Brothers to set aside up to £165m for motor finance scandal

“The ultimate cost to the group could be materially higher or lower than the estimated provision,” it added.

Close Brothers said the hit will affect its capital strength, but that it will remain above regulatory requirements, adding it is “well placed to absorb the impact of the estimated provision”.

Close Brothers is at the centre of a looming crisis facing the motor finance industry, with major lenders in the sector on the hook for potentially billions of pounds’ worth of compensation over motor finance deals with hidden commission payments.

The Court of Appeal in London ruled last October that it was unlawful for car dealers to receive commission on motor finance from lenders without a customer’s informed consent.

The court decision opened the door for a potential fresh wave of complaints from consumers who think they may have been mis-sold car finance in previous years.

Close Brothers disagrees with the ruling and has said it intends to appeal in the Supreme Court.

But it has been boosting its capital strength ahead of a possible big compensation bill and last September agreed to sell its wealth management division for about £200m.

The group said: “We have completed preparations for a significant risk transfer of assets in motor finance and continue to analyse any adjustments to the timing and structure of a potential transaction in light of the Court of Appeal judgment and our ongoing appeal to the Supreme Court.

“The group continues to evaluate a range of additional potential management actions to further optimise risk weighted assets, including potential risk transfer of other portfolios, a continuous review of our businesses and portfolios and other tactical actions.”

Close Brothers added that it expects its underlying earnings to drop to £75m for the six months to January 31, down from £94.4m a year ago.

In a note, analysts from Panmure Liberum said: “While the company has decided to put an estimated provision for motor finance (£165m) into its results, we are still no closer to being certain that this is the ‘right’ level.”

In an update on its financial performance, Close Brother said: “The group delivered a robust performance in the six months to 31 January 2025 and we remain committed to driving our strong underlying business forward.

"In banking, we continue to support our customers while maintaining strong margins and a resilient credit performance.”

"The group will release its half year results for the six months ending 31 January 2025 on 18 March 2025.

"In the second half of the financial year, as previously outlined, we anticipate there may be some financial impact from measures taken in response to the Court of Appeal judgment, including potential further increases in professional and legal fees and associated operational costs, as well as the impact of changes implemented by the motor finance business to ensure compliance with the new legal requirements on business volumes and income.”