Close Brothers will be forced to set aside £165m in its half-year results following recent developments in the motor finance scandal.
The calculation is based on currently available information but the merchant bank said ultimate costs could be “materially higher or lower” given uncertainty surrounding the FCA’s ongoing review of motor commissions.
Close Brothers said the provision would reduce its CET1 ratio, which measures a bank’s financial strength, from 13.5 to 12 per cent, which is still significantly above regulatory requirements.
Last October, the Court of Appeal handed down a ruling that lenders did not receive consent from customers about the amount of commission they charged on motor finance. This has put many banks on the hook for billions in compensation to make-up for historical missold loans.
Close Brothers and the South African lender FirstRand are taking the battle all the way to the Supreme Court.
The impact is of the motor finance scandal has forced banks to look to strengthen their capital position ahead of any looming bill. Close Brothers in September agreed to sell its wealth management division for around £200m.
It said on Wednesday measures including the sale of Close Brothers Asset Management would bring the group’s CET1 back to around 13 per cent by the end of the financial year.
“We have completed preparations for a significant risk transfer of assets in Motor Finance and continue to analyse any adjustments to the timing and structure of a potential transaction in light of the Court of Appeal judgment and our ongoing appeal to the Supreme Court,” the lender said in a statement to markets.
“The group continues to evaluate a range of additional potential management actions to further optimise risk weighted assets, including potential risk transfer of other portfolios, a continuous review of our businesses and portfolios and other tactical actions.”