Close Brothers shares surged by 17% on Wednesday after the specialist lender said it could 'comfortably absorb' its share of a £9.1bn compensation bill for the motor finance scandal. The bank expects its final costs to be around £320m, broadly similar to previous estimates and the £294m already set aside.
The Financial Conduct Authority's (FCA) compensation scheme, finalised last week, aims to resolve the scandal where drivers were overcharged due to commission arrangements between lenders and car dealers. The FCA estimates average payouts of £830 per victim.
Close Brothers' update allayed fears about its survival, especially after short seller Viceroy Research claimed it would need to double provisions to between £572m and £1.07bn. The bank has already sold its broker and asset management arms and is on track to cut 600 staff, about a quarter of its workforce, to reduce costs.
Hours earlier, South African group FirstRand announced it would sell its UK operations, including Aldermore and MotoNovo, citing frustration with the 'deeply flawed' compensation scheme. FirstRand must raise an extra £510m, bringing total provisions to £750m, and slash its earnings forecast.
FirstRand said it would seek an 'orderly ownership transition' for Aldermore, which employs 1,500 staff. A spokesperson declined to comment on whether the business could be wound down if no buyer is found, but stressed it remains financially robust and continues to operate as usual.
