Close Brothers Group PLC (LSE:CBG)’s £200 million disposal of its asset-management business (CBAM) has allowed the bank to shore up its capital base amid uncertainty over a regulatory review into its motor finance business.
Indeed, the addition of £172 million in initial cash proceeds will go a long way to bolstering Close Bros’ capital ratios as the financial implications of the Financial Conduct Authority’s probe into motor finance commissions come to light.
But, if comments from broker Shore Capital Markets are anything to go by, Close Bros failed to realise the full potential of this CBAM sale.
Shore Cap argued that the £200 million price tag undershoots CBAM’s true valuation (which the broker suggested is closer to £250 million).
This “arguably reflects the fact that this disposal is being carried out at a time when the group is in distress”, according to the broker.
Close Bros is anticipating up to £15 million in expenses in the year ahead related to the handling of the FCA’s motor finance probe, but the longer-term financial impact could be considerably higher.
Close Bros has not given any firm forecasts of how much is financially at stake with the FCA review, but the bank categorically denied that the CBAM disposal was a response to any “distress” as suggested by Shore Cap.
“This is emphatically not the case,” said the company. “This transaction forms part of the capital build plan which the group first articulated in March, and which has the potential to strengthen regulatory capital by £400 million."
Chair Mike Briggs stated: “The transaction is expected to increase the group’s common equity tier 1 capital ratio by approximately 100 basis points, marking significant progress towards the plan we outlined in March 2024 to strengthen our capital base.”
The spokesperson noted that at 27 times statutory profit after tax, it is “a good deal for CB’s shareholders and for CBAM”.
While Shore Cap placed a £250 million valuation of CBAM, this is at the upper end of consensus estimates.
Peel Hunt, for instance, said the £200 million price tag was “broadly in line with market speculation”.
Close Bros’ internal valuation of CBAM’s gross assets suggested a value of £192 million as of 31 July.
The FCA’s motor finance review is ongoing.