Close Brothers Group PLC on Wednesday said it has reserved £165 million as a provision to cover the costs of an investigation into the potential mis-selling of car finance loans.
The London-based bank, broker and asset manager said the provision in its first-half financial statements will include estimates for potential operational and legal costs as well as potential remediation for affected customers.
The firm said the provision is expected to reduce its common equity tier 1 ratio to 12.0% on a pro-forma basis, from 13.5% at the end of last year.
This would still be ‘significantly above’ the regulatory requirement of 9.7%, the company said.
In April, the Supreme Court is due to hear an appeal brought by car loan providers, including Close Brothers, challenging a ruling from the Court of Appeal that sided with consumers who complained about ‘secret’ commissions on car loans.
‘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 company said.
It expects management actions, including the sale of its asset management arm, to increase its CET1 ratio to around 13% by the end of the financial year, which concludes in July.
Close Brothers said it achieved a ‘robust performance’ in the six months to January 31.
It expects adjusted operating profit of £104 million in its Banking arm for the period.
On broker Winterflood, it added: ‘While Winterflood remains well placed for a recovery in investor confidence, its performance continued to be impacted by unfavourable market conditions, resulting in an expected operating loss of approximately £1 million in the period.’
Group adjusted operating profit of £75 million is expected, excluding its asset management which will be sold to funds managed by Oaktree Capital Management.
Close Brothers shares fell 2.4% to 356.36 pence in London on Wednesday morning.
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