Shares in FTSE 250 lender Close Brothers were volatile during early trading on Tuesday as the first day of the motor finance hearing kicked off.
The bank was one of the FTSE’s top fallers as markets opened after it suffered a downgrade from City broker Peel Hunt.
The broker said the “extent” of guidance downgrades announced by Close Brothers came as a “surprise”.
The lender’s shares plummeted as much as five per cent after markets opened, before rallying to over four per cent up.
But by midday the bank had tumbled back into the red again. As of 1300 BST, it was two per cent down on its market-open share price.
Peel Hunt forecast Close Brothers’ net interest margin (NIM) – an important metric used by banks that shows the difference between interest earned on loans and interest paid on deposits – would reduce to 6.7 per cent in the second half of 2025.
This would mark a loss of 60 basis points after the lender recorded a NIM of 7.3 per cent in the first half of the year.
Peel Hunt slapped a ‘Hold’ rating on the lender and gave it a target price of 327p. Close Brothers opened at 277.20p on Tuesday.
Analysts also reduced the banks earnings per share 15 per cent for the 2025 financial year to 50.6p. This continued into 2026 with a one per cent downgrade.
“We believe the shares appear optically cheap, but the upcoming Supreme Court ruling… is a key unknown,” analysts wrote.
The landmark case follows the Court of Appeal’s ruling in October 2024 that it was unlawful for banks to pay a commission to a car dealer without the customer’s informed consent.
Close Brothers, along with First Rand, is one of the lenders escalating the fight to the Supreme Court to get the ruling overturned.
If the banks face an adverse judgement, the Financial Conduct Authority (FCA) has said it will confirm an industry-wide redress scheme within six weeks.
The case has billions of the line for the lending industry, with RBC analysts projecting total compensation claims could reach £32bn.
Thus far, Close Brothers has reserved £165m in provisions, but a disadvantageous ruling could see that figure baloon.