Shares in historic City bank Close Brothers plunged today after the firm scrapped its dividend amid an investigation by the main regulator into the car finance market.
Close, part of the City since 1878, said there was “significant uncertainty” about the outcome of the review by the Financial Conduct Authority, alarming traders.
Others banks likely to be affected have shrugged off the FCA investigation.
Close shares crashed 17% today, off 68p at 330p.
The financial watchdog said January that it is investigating the car loans market to see if commission payments to brokers were too high, so that was thought to be already priced into bank shares.
Payouts to millions of car buyers are possible.
The company said in a stock market statement: “There is 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. In accordance with the relevant accounting standards, the 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.”
Close Brothers said it could not be sure what the impact on its finances would be. But that it “recognises the need to plan for a range of possible outcomes”.
The unscheduled update sent the stock, already down 60% in the last six months, into further freefall.
City analysts have already warned that the hit to providers of car finance loans could be between £2 billion and £8 billion.
The size of that disparity – and hence the market uncertainty – is what spooked investors today in particular.
Close will not pay a divi this year, though it hopes 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 added that it is implementing “a range of actions to further accrete capital”, including optimising risk weighted assets.
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.”
