Close Brothers Group PLC's (LSE:CBG) share price target has been reduced by UBS from 460p to 250p due to concerns over rising motor finance remediation costs following recent regulatory and legal developments.
UBS analysts believe Close Bros could be liable for up to £400 million in remediation tied to its former motor finance practices, although the bank is taking the fight to the Supreme Court.
UBS’ previous estimate was closer to £280 million. Analysts attributed the higher figure to an anticipated rise in claims and interest-related delays.
Close Bros and other lenders were found liable in a Court of Appeal ruling in October for potentially billions of pounds of customer compensation over their failure to disclose commissions received from loans for car purchases accurately.
They also raised their claim rate assumption to 60% from 50%, citing increased public discussion.
"Our base case remains that the Supreme Court accepts the appeals and potentially reverses the CoA ruling, confining the impacted lending to that done between 2007 and Jan 2021," UBS analysts stated in the report.
Despite the downgrade, UBS analysts acknowledged the stock is trading at distressed valuations and retained a neutral rating due to the high level of uncertainty.