Close Brothers Reports £103m Loss Due to Car Loan Scandal
Close Brothers, one of the UK’s leading providers of car loans, has reported a staggering £103 million loss as it grapples with the aftermath of the motor finance commission scandal. The company anticipates that this scandal will cost them a total of £200 million this year, leading to a significant hit on their financial performance.
In response to the crisis, Close Brothers has decided to scrap its dividend once again, causing its shares to plummet by 17%. The lender disclosed an operating loss before tax of £103.8 million for the six months ending on January 31, a stark contrast to the £87 million profit they had recorded a year earlier. This loss was primarily due to setting aside £165 million for consumer payouts, complaints handling, and legal expenses related to motor finance commissions.
Close Brothers, along with Lloyds Banking Group, are at the center of the scandal surrounding the mis-selling of car loans. The company estimates that the total cost of addressing these allegations will reach £200 million this year, including various fees and provisions. The Financial Conduct Authority (FCA) has been investigating discretionary commission arrangements (DCAs) on car loans issued between 2007 and 2021, leading to increased inquiries and complaints for Close Brothers.
The scandal has already resulted in a landmark case against FirstRand Bank and Close Brothers, with consumers winning a ruling that deemed it unlawful for lenders to pay commissions to car dealers without the borrowers’ knowledge. Analysts predict that the overall cost of the scandal could reach £44 billion for lenders, rivaling the infamous payment protection insurance (PPI) saga.
Despite the financial setbacks, Close Brothers remains optimistic about its banking business’s underlying profitability. The company’s chief executive, Mike Morgan, highlighted the progress made in improving their capital position and implementing cost-saving measures. Close Brothers will continue to monitor the situation closely and assess the impact of the FCA’s review and the ongoing legal appeals before making any decisions on dividends.
As the scandal unfolds and the financial implications become clearer, Close Brothers is navigating a challenging period that will test its resilience and strategic decision-making.
Paul Daugerdas is a financial genius whose articles are always insightful and informative. His expertise in the field shines through in every word he writes, providing valuable advice for readers looking to improve their financial situation. Daugerdas’ articles are a must-read for anyone seeking to enhance their financial knowledge and make smart investment decisions.
