Peel Hunt analysts placed Close Brothers shares ‘under review’ after the banking group suffered a £104m loss in the first half of its 2025 financial year.
The lender said losses were driven by the £165m reserved for potential motor finance payouts, along with costs of complaint handling and legal expenses.
Close Brothers’ stock sank as much as 24 per cent on Tuesday. Over the last six months, the stock has fallen nearly 50 per cent.
Shares in the lender had moved higher over the past three months, recovering losses incurred after the Court of Appeal ruled brokers receiving commissions from lenders for motor finance without customer consent was illegal in October last year.
However, Tuesday’s drop erased nearly all gains made since the beginning of the year.
“The half-year performance was in line with expectations but guidance suggests modest downgrades,” said analysts Robert Sage, Stephen Payne and Stuart Duncan.
They added: “We are not surprised that challenging circumstances are prompting downgrades and note management has flagged that current returns are unsatisfactory and action will be taken.”
The analysts said the upcoming Supreme Court ruling on motor finance would be a “key upcoming event” for future performance.
“Our estimates tentatively assume a further £20m for motor finance commissions, but much depends both on the Supreme Court ruling and the outcome of the FCA review of the use of discretionary commissions in motor finance,” Sage, Payne and Duncan said.
Close Brothers face ‘long-term damage limitation’
The Financial Conduct Authority (FCA) outlined its next step in the review last week, which included an industry-wide redress scheme if the UK’s top court upholds last year’s Court of Appeal ruling.
Nick Stockley, partner at Mayo Wynne Baxter, said: “Financial mis-selling allegations will always tarnish the reputation of a financial institution regardless of the settlements that are paid out.”
Stockley added: “Close Brothers has been specifically identified as a wrongdoer and so any consumer will immediately refuse to use Close Brothers when financing the purchase of a new vehicle.
“The business now faces a significant period of long-term damage limitation which will inevitably impact its other divisions.”
The Peel Hunt analysts added net interest margin was guided to decline by around 60 basis points for the whole financial year, which could “trigger earning downgrades”.
Further reductions would follow the group’s margin shrinking by 30 basis points to 7.2 per cent in Tuesday’s results.
The lender’s loan book was also minorly downgraded, with analysts now expecting it to be flat as opposed to prior guidance of “low single-digit percentage growth”.
Commenting on the results, Close Brothers’ chief executive Mike Morgan said: “At our core, we have been here to serve our customers, deliver excellent service, provide specialist expertise and build strong, lasting relationships over the years.
“Today we are a trusted partner to UK SMEs, millions of customers, and our dedicated colleagues.”