April 25, 2024
Finance

Close Brothers Cancels Dividend Amid FCA Review of Car Finance


(Bloomberg) — Close Brothers Group Plc said it won’t pay any dividends for the 2024 financial year as it looks to strengthen its balance sheet amid a regulatory review of historic car finance loan arrangements.

“The group will not pay any dividends on its ordinary shares for the current financial year,” the lender said in a trading update Thursday. “The reinstatement of dividends in the 2025 financial year and beyond will be reviewed once the FCA has concluded its process and any financial consequences for the group have been assessed.”

Last month, the Financial Conduct Authority said it would review car finance loans made before 2021 amid complaints of misselling, which could result in millions of customers being eligible for compensation. It’s also weighing a crackdown on insurance premium financing after describing the business as a “poverty premium.”

Shares in the lender were down 8.4% at 8:04 a.m. in London. They have more more than halved this year on news of the investigation and a possible crackdown on insurance premium financing, another market Close Brothers operates in.

The regulator has reached out to around a dozen banks about their auto lending practices, people familiar with the matter have said. For decades, lenders including Barclays Plc, Lloyds Banking Group Plc and the UK arm of Spain’s Banco Santander SA have made big money from funding car purchases. The FCA is looking at whether customers were told about the amounts of commission paid to the dealerships. 

Motor finance made up about a fifth of Close Brothers’s £9.5 billion ($11.9 billion) loan book at the end of July. The lender said “significant uncertainty” about the outcome and impact of the FCA review meant it wasn’t “currently required or appropriate” to take a charge in relation to the matter.

The statement also noted the board is taking other actions to bolster its balance sheet, including “optimizing risk weighted assets and continued delivery of our cost management initiatives.” The bank’s transitional CET1 ratio, a measure of capital strength, was 12.5% at the end of December, which compares to a regulatory requirement of 9.5%.

‘Unenviable Challenge’

Close Brothers “face an unenviable challenge, balancing the requirement for certainty with the inherent uncertainty of a situation not of their making,” analysts at KBW said in a note. “Without any details to help guide the total motor finance liability, the unknowns remain substantial.” 

The company said its banking division generated approximately £112 million of adjusted operating profit for the six months to Jan. 31, 2024. The asset management arms saw annualized net inflows of 9% while its stockbroker Winterflood is “well placed for a recovery in investor confidence.”

(Updates with details throughout.)

©2024 Bloomberg L.P.





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