Motor finance: Close Brothers shares rise after Supreme Court green lights appeal

Shares in UK banks, including Close Brothers, traded up on Wednesday following the news the Supreme Court has granted an appeal in a closely-watched motor finance case.

The Court of Appeal handed down a decision in a test case in late October siding with the consumers.

The court ruled that the lenders did not receive consent from customers about the amount of commission they charged.

The case against merchant bank Close Brothers and South African lender FirstRand involved three claims from regional courts that were merged together.

The implications of the ruling created uncertainty for the sector regarding potential compensation costs from an ongoing review by the Financial Conduct Authority (FCA).

Close Brothers is considered the most exposed to the scandal in relative terms, with motor finance making up around a fifth of its lending.

The banks sought to appeal the ruling, but hit a hurdle after the Court of Appeal rejected permission to appeal to the highest court in the UK.

The banks had to apply directly to the Supreme Court, which had pressure from the Financial Conduct Authority (FCA) to quickly consider the issue.

On Wednesday, Close Brothers informed its shareholders that its permission to appeal the case it was involved in was granted by the Supreme Court. It added that it would not be commenting further on an ongoing appeals process.

Close Brothers’ stock price gained as much as 12 per cent immediately after this announcement, making it the biggest riser on the FTSE 250.

However, it still remains at a three-decade low and has cratered around 30 per cent since the ruling in October.

Shares in other banks exposed to motor finance jumped after Close Brothers’ announcement.

Lloyds Banking Group, which owns the UK’s biggest auto lender Black Horse, rose as much as 3.7 per cent to make it one of the best performers on the FTSE 100.

RBC analysts have estimated the bank could take a £3.9bn hit to its profits, and Lloyds has already made a £450m provision to cover potential costs.

Barclays, which analysts estimate could face an up to £440m bill, rose 1.7 per cent.

Secure Trust Bank, which has paused new car lending and warned on profits, jumped 8.9 per cent.

Moody’s analysts have said the scandal could end up costing the industry £30bn.

The FCA’s top lawyer told MPs on Tuesday that it may be as big as the £50bn payment protection insurance mis-selling saga.