19th Mar 2024 11:04
(Alliance News) - Actions by Close Brothers Group PLC to bolster its capital position, amid the motor finance probe uncertainty, were "incrementally positive", according to Peel Hunt.
On Tuesday, the merchant bank said that - combined with its previous decision to not pay any dividend payments in the current financial year - the new plans could strengthen the group's available CET1 capital by around GBP400 million by the end of 2025.
Shares in Close Brothers rose 6.5% to 356.00 pence in London on Tuesday morning.
The plans include a combination of significant risk transfer of assets and selective loan book growth to optimise risk weighted assets, supported by additional cost cutting, the company said.
Close Brothers expressed confidence that these "decisive actions" will position the group well to withstand a range of scenarios and potential outcomes.
Close Brothers said there was "significant uncertainty" in relation to the UK Financial Conduct Authority's review but did not make any provisions in its first half results.
In January, the UK financial services watchdog explained it is probing whether compensation could be due for people who were potentially overcharged for car loans.
If it finds misconduct, those affected will be compensated.
In the wake of this, back in February, Close Brothers said it would not pay a dividend for the current financial year, which runs to July 31, and the reinstatement of payouts for financial 2025 will be reviewed once the FCA has concluded its probe.
Close Brothers said at this early stage, the timing, scope and quantum of any potential financial impact on the group cannot be reliably estimated.
Peel Hunt said the capital proposals by Close Brothers were a "significant amount" and equate to 30% of the group's CET1 capital base at the half-year.
"Whilst significant uncertainties persist, we believe the central case outcome for the FCA review is increasingly Close will avoid needing to raise capital".
It said stronger capital was "key for bolstering confidence".
Peel Hunt said if no equity raise is required, the case for attractive medium-term share price upside is strengthening once there is clarity over capital.
Gary Greenwood at Shore Capital said the moves should provide "significant additional headroom to absorb potential future remediation costs."
He currently rates the shares as a 'hold', given uncertainty regarding the potential outcome of the FCA’s review but believes management is taking "appropriate action to strengthen the business to cope".
By Jeremy Cutler, Alliance News reporter
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