Close Brothers shares downgraded despite motor finance win
Analysts have slapped a downgrade on Close Brothers stock despite the bank’s motor finance win last month at the Supreme Court.
The FTSE 250-listed bank’s stock rating was lowered to ‘Sector Perform’, down from previous ‘Outperform’ expectations.
Close Brothers shares were down over four per cent in early trading to 494.80.
It comes after the bank successfully overturned the Court of Appeal’s motor finance ruling last month that had sent its stock plummeting to lows of 185.00.
Shares have since clawed back losses, with a hefty boost from the top Court’s ruling taking it to a 110 per cent gain for the year-to-date.
Equity analyst Benjamin Toms said: “Our thesis that there would be a positive motor finance Supreme Court outcome played out, and we have run out of upside.”
The FTSE 250 bank is expected to revise profit targets at its full-year results in September, Toms said.
He pointed to the firm trading at a significant discount to its peers. Close Brothers’ Price-to-Tangible-Book-Value (P/TBV), a measure of how its stock price compares to the value of its physical assets, is 0.48, lower than that of other UK banks, indicating that the market values its rivals much more highly.
Toms said ahead of the Supreme Court judgment, the bank’s shares were “beaten up”.
Close Brothers overhaul
The group is in the midst of a major operations overhaul in a bid to streamline operations and cut costs.
Over the last few months, the company has offloaded its brewery arm and execution services specialist Winterflood.
Financial services firm Marex acquired Winterflood last month in a £100m deal. The deal is expected to be completed in 2026.
In March, Close Brothers sold its US-headquartered Oaktree Capital Management for an equity value of up to £200m.
In July, Close Brothers said it would scale back lending in its premium finance division by shifting away from personal lines, such as car and home insurance, to focus on the likes of property and liability insurance for firms.
RBC estimates the group’s total income will nudge up one per cent in the coming financial year to £762m before tumbling five per cent in 2026 and 10 per cent in 2027.
Costs are expected to fall simultaneously. Analysts have pencilled in a 17 per cent reduction for 2027.
Motor finance hits the brakes
The Financial Conduct Authority (FCA) confirmed shortly after the top Court’s ruling that it would consult on an industry redress scheme, expecting to cost between £9bn and £18bn.
The costs, whilst still high, curbed fears of over £30bn previously floated by analysts.
Close Brothers has set aside £165m for the saga with RBC projecting an impact broadly in line with provisions.
Whilst the verdict was a “clearing event,” Toms said there was only “further upside” should the FCA allow claims dated back to 2014.
The City watchdog said it would accept claims dating back to 2007, which sparked fierce backlash from trade associations branding it “impractical”.
In an interview with the Financial Times, Nikhil Rathi, chief executive of the regulator, urged lenders: “Now is not the time to haggle with us but to help put things right for consumers”.