Clore Brothers is facing “material charge for potential redress, as well as higher expenses” as an upshot of the FCA probe into motor finance lending, suggests Berenberg.
A retrenchment by the merchant bank from motor and premium finance lending (30% of loans) is also on the cards suggests the broker.
Close Brothers provides credit to customers that are not well served by mainstream banks, it adds.
“This includes motor finance for customers purchasing cars (often used) through small retailers (c20% of loans) and finance to spread insurance policy payments across the year (c10% of loans).
“Both products fulfil a clear consumer need and are profitable,” adds Berenberg, noting that both segments are now being reviewed by the FCA.
“In lieu of greater certainty, we now assume consumer redress of £250m during the full year 2025.
“This simplistically assumes redress equal to 5% of estimated gross loans made during the 10 years prior to 2021 based on average loans of c£1.5bn and an average loan term of about three years [and higher processing costs].”
Berenberg’s price target drops to 425p, against 308p currently.