Member Info for knot

Reposting my earlier post on the case timing with corrections....

The hearing will be public (livestreamed) and from that hearing the probability of the outcome will become clear early on to those with deep legal pockets. The ruling may be some time after the actual hearing or at the end of the hearing.

I do not have access to the case contract paperwork (applicant contracts)...

The case may well center around a particular part of the ruling :

"In some cases they undertook to find the best deal or the one which was most suitable for the customer. They therefore owed the claimants the “disinterested duty” described in Wood."

"disinterested" if they had an explicit engagement "fee" and not a "secret fee" hidden in the car purchase price.....

This is because the full facts of wood were not applied, referencing to an extract in the Wood ruling for context :

"While it was important not to be too prescriptive about what functions qualify a person as an agent with fiduciary duties and what functions do not, it was dangerous to equate the term agent with the status of a fiduciary, citing in support a passage from the judgment of Asplin LJ in Prince Arthur Ikpechukwu Eze v Conway [2019] EWCA Civ 88 at [39], to which I return below. The breadth and uncertainty of the duties of agents to their principals makes the label “fiduciary” “extremely fact dependent”. "

To add the context regarding the group action appeal to re-open PPI claims (early 2025), the current Court of Appeal ruling creates a "fiduciary" obligation which appears to undermine the Squire Bloggs comment and due to the nature of the ruling now allows prior PPI claims to be opened up again to recover the remaining 50% of the commission.

Reference : https://www.telegraph.co.uk/business/2024/11/13/substantial-threat-car-finance-industry-new-scandal/

The reopening of PPI would potentially result in larger claims than what was previously paid out in PPI so far.... under that scenario the financial industry of the UK would be a global laughing stock and a pending financial disaster of an unbelievably self inflicted manner.

The posts here (which may well be incorrect - disclaimer that this is not advice, recommendation, etc. I could be smoking pot, lol...) are intended to provide an outline as to how I see the case and the way forward, which I believe to be bullish for CBG given how far it has been beaten down to a PE of circa 1.5 and market cap loss of over £1bn. Please read them all twice..... and then make up your own mind.

These are my own views, which may well be wrong.

Taking a published, publicly visible (by Squre Patton Bloggs top good lawyers...) interpretation from the Plevin ruling (note "agent") :

"What is now clear is that lenders are only responsible for things they do or fail to do, or their agents (or deemed agents under, for example, Section 56(1) of the CCA) do or fail to do. This means that any claims alleging mis-selling or wrongful conduct by third parties (who are not the creditor’s agent) are bound to fail. This will be a welcome relief to any lender involved in intermediated credit from motor finance providers to consumer finance providers to asset finance providers. It is also now clear that simply being a member of a trade association, which may seek in any code of conduct to place additional obligations which exceed the legal framework, will not result in a lender being responsible to a customer for failing to do something in the code of conduct. "

Source : https://www.squirepattonboggs.com/-/media/files/insights/publications/2014/11/supreme-court-hands-down-judgment-in-plevin/files/supreme_court_hands_down_judgment_in_plevin/fileattachment/supreme_court_hands_down_judgment_in_plevin.pdf

The follow up point to add is that because there was a "fee" within the Wood engagement contract which effectively contracted the broker to be loyal and disinterested. This is why the second commission payment was explicitly within the contract in terms of requirement to notify and obtain consent.

As within Plevin there was no such engagement "fee" and therefore the route to fiduciary was not an option which is why it ended up with fairness (>50%) via Consumer Credit Act 1974.

There was also an express statement that a client cannot expect loyalty for free (no "fee" or explicit payment).

The implied position in the Hopcraft ruling was that the "fee" was embeded within the car sale profit, however this creates problems and discriminates cash buyers because it would require the sale process to fist ask how your going to pay for the car and then get a different price for the car with an obligation that the buyer is prohibited / discriminated against from then asking to pay in cash.

From my perspective, the particulars as to the Wood case revolve around the contract and the "fee" that was included within the engagement process. The commission that was subsequently deemed secret was because there was a clause in the contract that required the broker to disclose the commission before entering into the contract. The commission was not disclosed (breach of contract) and was thus "secret" as a result.

The broker "fee" and the way the contract was worded provided for a fiduciary role to be created on signing or manifested by assent due to the authority and wording within the engagement contract.

The broker in the Wood case recieved two payments, the "fee" and the secondary commission, which ended up being secret because in all probability they forgot to notify the client appropriately in accordance with the contract.

This is significantly different from the cases the Court of Appeal ruled on.

The hearing will be public and from that hearing the probability of the outcome will become clear to those with deep legal pockets. The ruling is quite some time after the actual hearing.

The case may well center around a particular part of the ruling :

" In some cases they undertook to find the best deal or the one which was

most suitable for the customer. They therefore owed the claimants the “disinterested

duty” described in Wood."

This is because the full facts of wood were not applied, referencing to an exxtract in the Wood ruling :

"While it was important not to be too prescriptive about what functions qualify a

person as an agent with fiduciary duties and what functions do not, it was dangerous

to equate the term agent with the status of a fiduciary, citing in support a passage from

the judgment of Asplin LJ in Prince Arthur Ikpechukwu Eze v Conway [2019] EWCA

Civ 88 at [39], to which I return below. The breadth and uncertainty of the duties of

agents to their principals makes the label “fiduciary” “extremely fact dependent”. "

For next week, the index exit volumes will likely be the only (forced) selling volumes going into the market. The net balance, given where the price is with a PE of around 1.5, there will be a steady (possibly smaller or bigger) volume of longer term buyers and those that also see what the flip on the 250 index will do. Some shorts will try and push down early like today and trying to then buy back through the day with the programatic selling of the index volumes, although if the volume is thin through the day the end of day will tick up more as the shorts close out.

The steady gain today from around 9:30 shows this sort of pattern before a later push down before end of day settlement.

Index review capitalisation cut-off date is the 3rd Dec, next week is the last full week (weekly options volumes in play as well). The following Monday (2nd) could be quite different as a result.

Possible incremental buy and hold strategy for next week would be wait until around 9:30-10:00 after any initial sell off if it occurs and then buy in, sit back and watch..

Just my thoughts on the current situation..... :-)

Some of those mug punters are buying ahead of the index review, which is the only source of forced sell volumes at the moment. The indexation review is pushing some of the positions out as the index constituents are rebalanced according to inclusion or relative market cap. Once this overhang is done it will flip to the next game of pushing CBG back into the index and everyone jumping onboard the index inclusion play. It's a slow strategy play, which mug punters can buy into early and sit back and just wait for it to play out. Mr Market works in lots of ways and includes mug punters ruling at times, like Gamestop.

To clarify, I was meaning the return of 100% of the commission involved is unfair and contrary to the Supreme Court ruling in Plevin and subsequent guidance provided by the FCA, which created the 50% threashold.

Remember the ruling within Plevin and the resulting threashold of "fairness", which was...

"Any amount of commission over 50% is classified as being mis-sold"

https://www.logican.co.uk/ppi-plevin-ruling/

The current ruling of 100% is in principle unfair and contradictory to a prior Supreme Court ruling.

Re : "will play with our emotions until next year"

1. The Supreme Court case will change the risk perspective of shorts massively. If the case goes forward even to a hearing it is quite bullish. If the Supreme Court overrules the Court of Appeal the share price should double from here.

2. After the FTSE250 index date in early dec the momentum will change

What does this sentence from today's trading statement mean?

"As outlined in our Full Year 2024 results, we have completed preparations for a significant risk transfer of assets in Motor Finance".

Effectively monetising the loan book values, which either brings forward the proffit from the loans and/or releases the capital requirement associated with the loans within the book. The trade off is a reduction in the overall proffit margin that would be achieved if the book was held to maturity.

More of a contingency planning option rather than waiting without options and being squeezed at the wrong time. Their decision to move ahead with (or not) this would likely be related to the Supreme Court case outcome, hence it will be delayed.

More likely just smaller shorts closing out ahead of the results, which to me says the balance was a neutral to bullish expectation for the results. Shorts may try pushing down again getting back in to exited positions, but the update was just a strong ongoing business and nothing bearish as such. The bear is fully priced in.

It's interesting that they did not set asside a provision at this point considering Santander's position yesterday, however even if they did at the same scale as Santander it would have been around £100m, which is last years retained dividiend and covered.

The immininent filing with the Supreme Court bodes well, confirms and contradicts a lot of the short selling hype of a blocked path. Looks like they are being prudent taking the full allowable time to form the case to the Supreme Court.

Ongoing growth looks good and strong interest margin, so positive ongoing business that has not been damaged by the current situation, which is positive in itself.

RBC had at one point of relative comparison in Feb 2024 :

Santander £1.1bn

Lloyds £2.5bn

£250m for Close

£350m Barclays

Source : https://www.ft.com/content/474f5c90-b336-4576-bf12-0f88d0ccde6f

On that rough basis I would expect Close to set asside around £102m, which is the retained dividend so far.

It's not a case of what is right and fair. The implications of the ruling extend well beyond motor finance and have lots of unintended consequences and it is those unintended consequences that people are starting to see more clearly. Those unintended consequences are over £100bn in claims from all industries and huge damage to the reputation of dealing with the UK. This is a little bit as to what Reeves mentioned within the Manison House speech.

In your huge wisdom, what do you think will happen to the share price if the Supreme Court overrules the Court of Appeal decision ?

I don't pin flags to illogical ideology, more like about 50hrs of legal research.

This case at the Supreme Court may be an opportunity for the courts and legal system to rebalance and hit the claims companies where it hurts, with a few million of rushed claims that are going nowhere. I'm expecting the Supreme Court to roll back the creation of a "fiduciary" role within the Court of Appeal, which will in effect cancel the vast majority of new claims. The "secret" only arrises as an issue because the Court of Appeal extended the prior legal definition of a fiduciary by a long margin.

Read the Act in accordance with other court rulings before you paint a short sell. Crystal clear as proven in Plevin within the PPI case is the written contract. Also within other court cases the validity of the statements that even the FCA relied on as being within the applicable laws at the time. I could misquote a different random Act of parliament if that would make your post remotely valid.

According to this article released on the 19th :

"Finally, we note that while an appeal has been lodged in the UK against the decisions"

https://www.crowell.com/en/insights/client-alerts/financiers-beware-uk-court-of-appeal-holds-financiers-liable-to-repay-commission-payments-paid-to-brokers

Also highlights the ludicrous situation it places the UK in regarding global trade and brokers.. Didn't the FCA get given a growth remit.. and now looking how to get out of the huuuuuge hole they have created..... enter the Supreme Court. Watch all the ambulance chasing claims companies scream...

Asside from that, everyone should file a complaint with the FCA regarding Martin (aka the clown) Lewis hidden commissions. "The road to hell is paved with good intentions"...

Why the Supreme Court needs to hear the appeal and clarify the situation nobody really seems to have fully comprehended yet (at least in public). The slight (huge) problem with the ruling is the fiduciary obligation, regardless of commission. The ruling changes the level at which a fiduciary role is deemed to be created and the really big problem with that is not the commission. Lowring the fiduciary role boundary opens up the issue of claims for other legal damages, which is not specific to this case at all. The ruling was a small snowball pushed off a verry tall hill, which will pick up a lot of unintended consequences on the way down and may have been part of Reeves comment (Madison House Speech) about unintended consequences. This is why the SC is highly likely to either reverse the "unarguable" decision or at the very least limit the bounds significantly with much needed guidance and clarity. The deadline for the appeal submission is either the 21 or 22. The 21 being the Q1 results / AGM. Volatility ahead.