Stocks in London closed lower on Friday, as a car finance probe weighed on the shares of Lloyds Banking Group, Barclays and Close Brothers.
The FTSE 100 index closed down 19.13 points, 0.3%, at 8,248.84. The FTSE 250 ended up 29.36 points, or 0.1%, at 20,819.91, and the AIM All-Share lost 3.02 points, 0.4%, at 722.67.
The Cboe UK 100 closed down 0.3% at 826.07 on Friday, the Cboe UK 250 ended down 0.3% at 18,331.11, but the Cboe Small Companies rose 0.4% at 16,910.73.
For the week, the FTSE 100 was down 1.3%, the FTSE 250 fell 1.6% and the AIM All-Share declined 2.5%.
On the FTSE 250, merchant bank Close Brothers plunged 25%.
The company intends to appeal a court judgment to the UK Supreme Court in the Hopcraft case, which upheld the claimant’s appeal against Close Brothers Ltd.
The court has determined that motor dealers acting as credit brokers owe both a disinterested duty and a duty of loyalty to their customers.
‘This sets a higher bar for the disclosure of and consent to the existence, nature, and quantum of any commission paid than that required by current Financial Conduct Authority rules, or regulatory requirements in force at the time of the case in question,’ Close Brothers said.
It added: ‘We will be temporarily pausing the writing of new UK motor finance business while we review and implement any relevant changes to our documentation and processes to ensure compliance with these new requirements.’
The ruling knocked shares in Lloyds Banking Group, which slid 7.3%, making it the worst performing blue-chip stock.
Lloyds owns Black Horse, which is Britain’s biggest motor finance provider. In February, it set aside £450 million to cover the potential costs of a regulatory probe into motor finance commission arrangements.
In January, the FCA said that it would investigate whether people who believe they were charged too much for car loans were owed compensation.
But analysts at RBC think the judgement ‘potentially widens the scope of the issue for UK banks’.
‘Retroactivity could be broader than the 2007-2020 window we already knew about, and any finance commission model where the exact quantum of the commission was not disclosed to the customer could also get captured by the judgement.’
‘In our view, consensus has been too optimistic on this issue, and we expect that analysts will move their impact assessments closer to our base case,’ RBC said.
RBC thinks Close Brothers could face a £250 million hit, Lloyds a £2.5 billion charge and Barclays a £350 million cost.
‘Today’s judgement potentially sets a precedent for many more similar claims to come through the courts,’ the broker added.
Shares in Barclays eased by 2.7%.
The news took most of the shine of the NatWest’s share price although the lender still closed 0.6% to the good after raising guidance once more.
The lender now expects to achieve a return on tangible equity above 15%, its outlook raised from ‘above 14%’. Total income excluding notable items is to be around £14.4 billion, up from its previous forecast of ‘around £14.0 billion’. Total income excluding notable items in the third-quarter rose 7.3% on-year and 5.1% on-quarter to £3.77 billion. For the whole of 2023, it totalled £14.34 billion, so it expects growth of around 0.4% for 2024.
NatWest in February had forecast a 2024 outcome in the range of £13.0 billion to £13.5 billion. It maintained its outlook in April, but then raised it in July.
Gary Greenwood, banking analyst at Shore Capital said NatWest delivered a ‘solid beat’ along with upgraded guidance which helped to reinforce the ‘feel-good factor that has seen the shares rise by [more than] 70% year-to-date’.
‘With the wind in its sails, the shares may well have further to run, but from a fundamental standpoint we feel the valuation is broadly fair.’
In European equities on Friday, the CAC 40 in Paris closed down 0.1% while Frankfurt’s DAX 40 ended flat.
In New York at the time of the London close, the Dow Jones Industrial Average was down 0.2%, the S&P 500 was 0.5% higher and the Nasdaq Composite rose 1.1%.
The mood across the pond was boosted as a survey showed US consumer sentiment hit a seven-month high in October.
Consumer sentiment edge up to a reading of 70.4, according to the final reading of the index prepared by the University of Michigan, up from its preliminary reading off 68.9.
That pushed the main index to its highest level since April.
October’s increase was ‘primarily due to modest improvements in buying conditions for durables, in part due to easing interest rates,’ director of surveys Joanna Hsu said.
The pound was quoted at $1.2979 late Friday afternoon in London, up compared to $1.2955 at the equities close on Thursday. The euro stood at $1.0813, higher against $1.0799. Against the yen, the dollar was trading at JP¥152.07, up compared to JP¥151.84.
In London, weak consumer confidence figures added pressure on the chancellor ahead of next week’s budget.
Ahead of Wednesday’s budget, a survey showed consumer confidence in the UK fell again amid further worsening sentiment.
GfK’s consumer confidence index fell one point in October to minus 21, as people’s predictions for the general economy worsened over the coming year despite a slight improvement in their forecasts for personal finances. Caution ahead of the budget was also cited as a factor.
The drop was significantly less than the seven-point plunge in September. Experts said that was also driven by Labour’s gloomy messaging around the spending statement in late October.
But Pantheon Macroeconomics suggested confidence may not be as damaged as the report suggests.
‘The first cut to bank rate in August appears to have quickly fed into the economy, particularly into mortgage rates and the housing market, which we think signals that consumers’ confidence is not in as desperate a state as the GfK suggests so we expect the headline GfK balance to improve once budget uncertainty has passed.’
Ahead of the budget, Chancellor Rachel Reeves confirmed changes to the fiscal rules, allowing the government more scope to increase borrowing to free up more space for capital spending.
Goldman Sachs estimated that if the updated rules continue to require that debt – now defined as public sector net financial liabilities – must fall as a share of GDP five years ahead, then headroom against the debt rule would likely rise by around £50 billion.
Elsewhere, SSE fell 1.0% after Citi downgraded to ’sell’ from ’neutral’.
‘SSE has an attractive set of networks and renewable assets. However, we are increasingly concerned around the deployment of its offshore wind fleet and see risks of further delays, which could impact EPS and/or returns,’ the broker said.
Online retailer boohoo climbed 6.0% as the war of words with Frasers Group ramped up.
Sports Direct owner Frasers wants Mike Ashley, who has a 73% stake in the FTSE 100 company, to take over as CEO of boohoo. Frasers owns 27% of boohoo.
The AIM listing said that while it ‘remains willing to discuss board representation with Frasers in a constructive manner’, it must be mindful of the fact that Frasers is an investor in Asos, which operates in a similar market to boohoo.
AJ Bell’s Russ Mould said ‘based on past form, the retail tycoon [Ashley] is unlikely to disappear quietly whatever Boohoo’s response so we can expect this saga to run for some time to come.’
Brent oil was quoted at $75.98 a barrel on Friday, up from $74.48 late Thursday. Gold was quoted at $2,737.99 an ounce, up against $2,729.94.
Next week’s global economic calendar sees a raft of jobs data in the US culminating in nonfarm payrolls figures on Friday.
The local corporate calendar on Monday sees a trading statement from Computacenter. Later in the week results are due from BP, HSBC, GSK, Standard Chartered and Shell.
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