April 8 (Reuters) - Britain's Close Brothers on Wednesday disclosed a potential 320 million pound ($429.50 million) cost related to a motor finance mis-selling scandal, broadly similar to the
Close Brothers stock surges as UK car finance redress estimate relieves market
Close Brothers' response to UK car finance compensation scheme
By Kirstin Ridley and Yamini Kalia
Market reaction and share performance
LONDON, April 8 (Reuters) - Shares in Close Brothers surged 23% on Wednesday after the British specialist lender estimated its hit from the market regulator's 9.1 billion pound ($12 billion) bill for mis-sold motor finance would be broadly in line with existing provisions.
Close Brothers, whose stock tumbled last month after a short-seller report that it had vastly undervalued the effect of the motorist compensation scheme, assessed its costs at around 320 million pounds, only about 26 million pounds higher than initially forecast.
Its shares were 17.8% higher in mid-morning trade, easily outpacing a 5.6% gain in broader British financials on the back of a broad stock market rally on news of a two-week U.S.-Iran ceasefire.
Legal considerations and future outlook
The company did not rule out any legal challenge, noting that it would continue to closely monitor legal, regulatory and industry developments as it considers its next steps.
Banks set aside billions for compensation payments
The Financial Conduct Authority (FCA) last week told the country's motor finance industry to compensate motorists by around 9.1 billion pounds after inadequately disclosing commissions and contractual ties between lenders and car dealerships over a 17-year period until 2024.
FCA's revised estimates and industry impact
The final headline bill was trimmed from the FCA's original 11 billion pound estimate after the regulator reduced forecasts for administrative costs, adjusted eligibility criteria and lowered forecasts for motorist participation.
Major banks and individual lender exposure
Banks including Lloyds, Santander, Barclays and the finance arms of vehicle manufacturers have collectively set aside billions of pounds for compensation. But individual lender exposure varies.
South Africa's FirstRand on Tuesday hiked its provisions for its share of the redress package by 510 million pounds to 750 million and vowed to put Aldermore, its British challenger bank, up for sale.
Impact on Close Brothers' capital and workforce
Close Brothers' provision is expected to reduce its Common Equity Tier 1 capital ratio, a key measure of a bank's financial strength, by about 25 basis points to 14% on a pro-forma basis as at January 31, 2026, but comfortably above its medium-term target range of 12%-13%.
In March, Close Brothers said it would cut a fifth of its workforce by 2027 as it grapples with the costs of one of Britain's most expensive financial mis-selling scandals.
Additional information
($1 = 0.7457 pounds)
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(Reporting by Kirstin Ridley in London and Yamini Kalia in Bengaluru; Editing by Nivedita Bhattacharjee and David Holmes)
