Close Brothers Group PLC (LSE:CBG) potentially faces more claims for compensation if the Supreme Court upholds the Hopcraft judgement applying the Appeal Court's ruling on commission disclosure.
So far, the attention has focused on motor finance, but Canadian bank RBC suggests that the interpretation of the Court of Appeal was so broad it could spread to other areas of lending, notably insurance premium finance where Close Bros is also active.
In premium finance, RBC said that CBG is the only bank in its coverage with material exposure (10% of the loan book, 50% retail, 80:20 motor:home, respectively).
RBC’s initial estimate of the potential liability for CBG - in the event of a bad outcome in respect of premium finance - is around £250 million, of which £100 million has been included in its target price model.
“Like in motor finance, banks pay brokers commissions for acting as an intermediary, we believe it to be unlikely that the quantum of these commissions are typically disclosed to the customer,” said RBC.
A report yesterday in Politico indicated that the Court of Appeal believes there are no grounds for its decisions to be referred to the higher Supreme Court.
RBC said its model for Close Bros now includes provisions of £420 million (motor £320 million; premium £100 million), which the bank can absorb if it unwinds its motor/premium loan books and doesn't pay a dividend in 2025-2026.
A more damaging scenario of £640 million (motor £390 million; premium £250 million) suggests there could be a 'bleaker path’ adds RBC.
Outperform remains RBC’s rating but it now includes a "speculative risk" qualifier to account for increased earnings unpredictability.
Shares today were 224.8p.