Car loans probe forces merchant bank to bolster finances | City & Business | Finance


Merchant bank Close Brothers has launched a £400million plan to build up its finances in case it has to compensate former car loans customers for overcharging them.

Close Brothers said that axing its dividend payments until further notice, as well as adjusting its lending, will strengthen its balance sheet by £200million. At the same time, cost cutting and retaining profits will yield a further £200million.

Chief executive Adrian Sainsbury said it had taken decisive action to “materially” strengthen its finances, in the event that a Financial Conduct Authority probe of historic motor finance deals concludes that motorists were overcharged for their vehicle loans.

Prior to January 2021, lenders allowed car dealers to adjust the interest rates on loans. This increased the commission payments available to them and the FCA says there have been a high number of complaints from motorists who believe they were overcharged.

At Close Bros’ interim results, Sainsbury said: “It would be premature to predict the outcome (of the FCA probe) or estimate the potential impact on the group. The board however recognises the paramount importance of preparing for a range of outcomes.”

Last month Lloyds Banking Group set aside £450million to cover potential compensation costs to motorists, but said that it was confident that all of its vehicle loans were above board.

Close Bro’s pre-tax profits for the six months to the end of January fell 20% to £93.6million due to a combination of write offs and lower activity levels hitting its stock market trading arm Winterfloods.

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