Close Brothers expects material increase to motor finance provision

(Alliance News) - Close Brothers Group PLC shares fell on Thursday as it said the Financial Conduct Authority's proposed compensation scheme for UK motor finance customers is likely to result in a material increase in its existing provision of GBP165 million.

Shares in the London-based merchant bank were down 9.9% at 472.40 pence in London on Thursday afternoon.

Close Brothers said it is continuing to assess the potential impact and implications of the redress scheme.

On Tuesday, the regulator estimated that compensation for mis-sold car finance could cost UK banks around GBP8.2 billion, below its earlier forecast range of GBP9 billion to GBP18 billion.

The regulator said around 14.2 million agreements, or 44% of those made since 2007, are likely to be considered unfair due to inadequate disclosure.

The FCA expects an 85% participation rate in the scheme, bringing total redress to GBP8.2 billion including interest. Implementation and operational costs could add another GBP2.8 billion, taking the total estimated cost to GBP11 billion.

On Thursday, Close Brothers said uncertainty around the outcome of the consultation remains.

"The group's initial assessment is that if implemented in its current form, the proposed scheme is likely to result in a material increase in its existing provision of GBP165 million," the firm said.

It added that this is subject to ongoing review of the proposal and analysis of its potential impact on the company.

Close Brothers said it "remains confident" in its capital strength, with a common equity tier 1 ratio of 13.8% at the end of July, above the requirement of 9.7%.

By Michael Hennessey, Alliance News reporter

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