Shares in Close Brothers Group PLC (LSE:CBG) were down 5% at 418.82p after being downgraded by RBC Capital Markets, which cut its rating to 'sector perform' from 'outperform' and lowered its price target to 470p from 625p.
Analyst Benjamin Toms said the shares could drift lower from here after a fresh setback in the long-running motor finance saga.
Close Brothers is a specialist lender that until 2025 held the record as the only quoted UK bank to maintain its dividend for 30 unbroken years without state support.
The downgrade follows a decision by the Upper Tribunal last week to hear judicial review challenges to the Financial Conduct Authority's motor finance redress scheme.
The bank said it was surprised the case was granted, arguing that the regulator had faced an impossible task in designing a scheme to satisfy all parties.
Toms said the ruling made the motor finance issue more uncertain and protracted, widening the range of potential outcomes in both directions.
He estimated the challenge pushes back the timetable by at least three months, with a hearing now pencilled in for December 2026 or, more likely, February 2027.
Separately, a Court of Appeal decision last Tuesday to allow mass omnibus claims over motor finance was described as a negative development.
RBC now expects Close Brothers to skip its dividend for the 2026 financial year, stripping a forecast 5p payout from its numbers.
The lender currently holds a provision of £320 million against the existing scheme, though the analyst said this may not change in the near term.
If the regulator were to scrap the scheme, Toms calculated Close Brothers could face around £200 million in additional administrative costs, equivalent to 230 basis points of core capital.
The bank is forecast to deliver the weakest value creation of 50 European lenders over the next three years.
Its three-year average total return yield of 6% was described as unattractive relative to peers.
The shares trade at 0.48 times forward tangible book value, at the bottom of their historical range and a steep discount to the wider sector.
RBC values the lender using a residual income model with a cost of equity of 13.75%.
