UBS has warned that investors in companies affected by the FCA probe into motor finance are being sanguine about the likely potential outcomes.
Conversations held by the bank suggest the market is more confident than UBS thinks it should be that potential motor finance claim processing and redress costs are reflected in current valuations.
“We think the FCA's new ‘Dear CEO’ letter and statement are a reminder of the ongoing uncertainty evident in the challenges that some lenders are having in providing the regulator with the requested data,” it said, as well as being a timely reminder of ongoing uncertainty
In the statement, the FCA notes motor finance firms are taking different approaches in accounting for the potential impact of past discretionary commission arrangements before spelling out what they need to do.
UBS adds that the final impact depends on factors including i) the length of the period requiring compensation, ii) the number of contracts found errant iii) the gap between rates charged and adjudged appropriate, iv) the number of customers claiming, v) the proportion of claims upheld, and vi) opex incurred in complaint resolution.
That still means a lot of uncertainty but its key assumptions point to a £2bn bill for Lloyds and £280m for Close Brothers, against a £450m provision at Lloyds and measures to bolster capital at Close but no provision to date.