(Reuters) – Close Brothers has set aside up to 165 million pounds ($205 million) to cover costs related to motor finance claims, the British lender said on Wednesday, the first time it has estimated the potential impact of a ruling on unlawful commissions.
In what could become one of the UK’s costliest consumer banking scandals, Britain’s motor finance industry was found liable by the Court of Appeal in October for “hidden” commissions following an investigation into historic sales.
Close Bros was granted permission to appeal the ruling in December.
The provision announced on Wednesday is expected to reduce the company’s CET1 ratio, a key measure of financial strength for lenders, to 12%, from the 13.5% it reported as of December 31.
This would still come in significantly above the regulatory requirement of 9.7%.
Close Bros shares slipped 1% to 361 pence by 0849 GMT having initially spiked at the opening.
Expectations of a costly pay out are fizzling out as Britain’s Finance Minister Rachel Reeves has urged regulators to eliminate barriers to growth by stopping “excessively” managing risk.
The efforts of regulators are directed towards an outcome which does not end up with terminal risks for lenders, said Rae Maile, a Panmure Liberum analyst.
Maile added that the lender’s efforts to manage its capital through limiting lending, disposing of its wealth business, not paying a dividend and cutting costs helped cushion any impact.
The London-based company expects its capital ratio to increase to about 13% by the end of this year, in-line with previous expectations.
($1 = 0.8030 pounds)
(Reporting by Yamini Kalia and Pushkala Aripaka in Bengaluru; Editing by Mrigank Dhaniwala, Rashmi Aich and Elaine Hardcastle)
