Shares in Close Brothers rocketed as markets opened on Monday after the bank won its landmark motor finance case at the Supreme Court.
Shares in the FTSE 250 lender surged over 25 per cent during early trading, hitting a high of 500p.
Close Brothers win
Investors rushed to buy the shares after the Supreme Court upheld Close Brothers’ appeal to overturn an October ruling that found it was unlawful for banks to pay a commission to a car dealer without the customer’s informed consent.
In the months after the ruling, Close Brothers shares fell to a low of 185p.
But the top Court found on Friday that claims against the lenders couldn’t succeed based on fairness, known as equity, or tort, which refers to any wrongful actions worthy of compensation.
Matt Britzman, senior equity analyst at Hargreaves Lansdown, said: “Friday’s Supreme Court ruling on car finance commissions is a win for UK lenders, bringing some much-needed legal certainty.”
Close Brothers had set aside £165m for provisions, but analysts had warned the figure could quickly climb should an adverse ruling be handed down to the banks.
Moody’s predicted the banking sector could be faced with a £30bn hit in a nightmare scenario, whilst one HSBC analyst floated a £44bn figure.
Regulator explores redress
The Financial Conduct Authority confirmed on Sunday that it will consult on an industry-wide redress scheme.
The City watchdog is aiming to publish a consultation by early October, with total costs of the redress expected to be between £9bn and £18bn.
Close Brothers said there “remains uncertainty as to the range of outcomes, and the financial impact to the group, including any impact on its provisioning assessment” until the outcome of the regulator’s consultation.
It said on Monday: “We look forward to engaging with the FCA (Financial Conduct Authority) in respect of the consultation.”
Still, there remains a degree of uncertainty after the Supreme Court sided with one claimant finding the commission was “unfair” under the Consumer Credit Act.
Britzman said: “It’s not a home run as the FCA announced plans to explore a compensation scheme that could cost the industry £9–18bn.”
Elsewhere, Lloyds Banking Group – which owns leading vehicle finance provider Black Horse – was up over five per cent on Monday.
Lloyds led the pack for provisions at £1.2bn. Santander had also set aside £295m and Barclays £90m.
