LONDON (Reuters) – Close Brothers’ total capital ratio rose by 80 basis points to 18% in the quarter to the end of April, as it bolstered its finances pending a ruling that may force the bank and others to pay out millions of pounds in redress to motor loan customers.
Close and South Africa’s FirstRand are seeking to overturn a Court of Appeal judgment which said brokers owe a fiduciary duty to customers and must have their fully informed consent to receive a commission from lenders.
The ruling has sent shockwaves around the UK banking industry, with several banks facing the prospect of repaying affected customers compensation plus interest.
Close said on Wednesday its common equity tier (CET1) capital ratio, which reflects a bank’s ability to absorb losses without jeopardising solvency, was 14%.
The applicable minimum CET1 and total capital ratio regulatory requirements were 9.7% and 13.7% respectively at April 30.
Close also said it expected the CET1 figure to exceed its medium-term target range of 12% to 13% by the end of the financial year.
Analysts at KBW said the improved capital position “removed the risk of a capital raise” to cover possible liabilities. KBW has set Close’s ‘worst case’ liability estimate at 460 million pounds.
Close shares, which have fallen 57% so far this year, were unchanged in early trading.
“We are taking proactive steps to ensure that the group is well positioned to generate strong, sustainable returns once the motor finance commissions uncertainty has been resolved,” CEO Mike Morgan said in a statement.
“Alongside a stronger capital position, delivering on these priorities will create a more efficient and resilient business, one that delivers greater value for shareholders and continues to support customers, as we have through many cycles.”
Close and FirstRand have set aside 165 million pounds ($221.61 million) and 140 million pounds, respectively, to cover potential claims, while Lloyds Banking Group has earmarked 1.15 billion pounds. Santander UK has set aside 290 million pounds and Barclays 95 million pounds.
Close said it was on track to deliver annualised cost savings of around 25 million pounds by the end of the 2025 financial year and would update investors on further initiatives to increase savings.
($1 = 0.7445 pounds)
(Reporting by Chandini Monnappa in Bengaluru and Sinead Cruise in London, Editing by Louise Heavens)
