Close Brothers says £320m car finance hit can be ‘comfortably absorbed’

Close Brothers has said it can “comfortably” swallow up costs of around £320 million to compensate people mis-sold a car loan, sending its share price up sharply.

Shares in the lender were up by nearly a fifth on Wednesday morning after telling investors that its provision for the motor finance issue was broadly similar to previous estimates.

The firm had been reviewing the details of the Financial Conduct Authority’s motor finance compensation scheme, which were set out last week.

Close Brothers said it was now estimating the cost of the scheme to be around £320 million, slightly more than the £294 million estimated at the end of January.

This can be “comfortably absorbed by existing capital resources, leaving the group well-positioned to continue delivering its strategy”, it said.

The higher provision reflects changes made to the FCA’s redress scheme compared with original proposals shared last year.

The FCA is estimating that about 12.1 million motor finance agreements are eligible for compensation under its scheme, with average payouts expected to be £829.

Close Brothers said the scheme covers about 720,000 loans written by the lender between April 2007 and November 2024.

It is expecting average payouts to be around £500 per customer – lower than the watchdog’s average, which it said reflects relatively smaller loan sizes and lower commission levels in its book.

But the banking group said its provision remains under review and dependent on “any potential further legal, regulatory or industry developments” including any “legal challenge of the scheme”.