Close Brothers Group PLC on Thursday warned on its dividend, sending its stock crashing, as it prepares to count the cost of a UK probe into motor finance.
The merchant bank’s shares dropped 12% to 351.50 pence each in London at the open on Thursday. It was among the worst FTSE 250 performers.
Close Brothers cautioned on a ‘potential financial impact’ stemming from the UK Financial Conduct Authority’s probe of historical motor finance commission arrangements.
The UK financial services watchdog in January explained it is probing whether compensation could be due for people who were potentially overcharged for car loans.
If it finds misconduct, those affected will be compensated. The FCA said it heard from over 10,000 people who are concerned they were charged too much. It added there could be even more yet to come forward.
‘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 is a long-standing priority of the group to maintain a strong balance sheet and prudent approach to managing its financial resources. To that end, the board considers it prudent for the group to further build capital strength, while supporting our customers and business franchise,’ Close Brothers said.
The bank explained it will pay no dividend for the current financial year, which runs to July 31, and the reinstatement of payouts for financial 2025 will be reviewed once the FCA has concluded its probe.
Meanwhile, Close Brothers said its business ‘continues to perform well’. Its Banking arm is enjoying ‘strong margins and a stable credit performance’. The unit generated £112 million worth of adjusted operating profit in the six months to January 31, up markedly from £15.0 million a year prior.
Elsewhere, it said: ‘Close Brothers Asset Management delivered strong annualised net inflows of 9%, and [stockbroker] Winterflood remains well placed for a recovery in investor confidence.’
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