Close Brothers Group PLC (LSE:CBG) will make a £165 million provision relating to motor finance commissions for the first half of the current year.
This compares to an average analyst forecast of £155 million for the entire year.
Making this provision will reduce the group's CET1 capital ratio from 13.5%, where it stood at the end of December to 12%, which remains well above the regulatory requirement of 9.7%, it said in a statement on Wednesday.
The lender said the size of the provision was the “outcome of a thorough assessment” and includes estimates for potential operational and legal costs, as well as estimates for potential remediation for affected customers.
“The estimated provision is based on probability weighted scenarios using various assumptions,” it added, including commission models, rates and time periods of any regulatory redress scheme, so the eventual cost could be much larger or much smaller.
With the sales of its asset management arm, which was agreed in September and is expected to close in “coming weeks”, Close Bros said it expected the capital ratio to return to around 13% by the end of the 2025 financial year.
Management was said to be continuing to keep an eye on potential adjustments to the timing and structure of a potential transaction in light of the Court of Appeal judgment and the ongoing appeal to the Supreme Court, while also evaluating other potential actions.
Close Bros also provided a trading statement for the first six months of its financial year, where the banking division's loan book declined to £9.8 billion at the end of January from £10.2 billion at the end of October, which it said was driven by seasonality and selective lending to optimise risk-weighted assets.
Adjusted operating profit in the division is expected to be roughly £104 million for the first half, excluding the motor finance provision and other adjusting items.
Its Winterflood market-making arm is expected to make a £1 million loss but is "well placed for a recovery in investor confidence".
Underlying group profits for ongoing businesses are expected to be around £75 million.
Shares in Close Bros opened 1% higher at 372p.
** Update: Adds detail on analyst consensus, share price **