June 16, 2024
Finance

Close Brothers shares plunge after it scraps dividend on FCA probe


Close Brothers will not pay any dividends on its ordinary shares for the current financial year as it prepares for potential financial impact as a result of a review by the watchdog.

The news sent shares down 13 per cent in London on Thursday morning.

The Financial Conduct Authority (FCA) announced last week that it would review historic claims of unfair costs on discretionary car finance commissions and ensure consumers receive compensation if it uncovers evidence of widespread misconduct.

Shares in FTSE 250-listed Close Brothers have plummeted 55 per cent since the FCA first announced its probe.

Today, the bank said in a trading update that the “significant uncertainty about the outcome of the FCA’s review, and the timing, scope and quantum of any potential financial impact on the group cannot be reliably estimated at present”.

Analysts have pegged the hit to the motor finance sector – with Close, one of the UK’s oldest merchant banks, heavily involved – at between £2bn and 8bn in compensation payouts.

The bank said its board has concluded that it is currently not required or appropriate to recognise a provision in the group’s half-year 2024 results in relation to this matter.

The board explained that its long-standing priority is to maintain a strong balance sheet and prudent approach to managing its financial resources.

“While there is no certainty regarding any potential financial impact as a result of the FCA’s review, the Board recognises the need to plan for a range of possible outcomes,” it explained.

“The board considers it prudent for the group to further build capital strength, while supporting its customers and business franchise.”

As a result, Close Brothers will not pay any dividends on its ordinary shares for the current financial year.

The bank added that “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”.

The board also added that it is implementing “a range of actions to further accrete capital”, including optimising risk weighted assets.

Close Brothers did note that its business continues to perform well, noting that the banking division generated approximately £112m of adjusted operating profit for the six months to 31 January 2024.

Benjamin Toms, an analyst at RBC, said in a note: “The group sees significant uncertainty around the FCA’s review of discretionary commissions in motor finance. Therefore, the timing, scope and quantum of any potential financial impact on the group cannot be reliably estimated at present.”



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