Car finance investigation forces merchant bank to scrap payout

ONE of Britain’s oldest merchant banks has been forced to scrap a £100m dividend over a City watchdog investigation into the possible mis-selling of car finance.

Close Brothers said investors would receive no payouts this f i nancial year owing to “uncertainty” surrounding the Financial Conduct Authority (FCA) review.

Shares in the FTSE 250-listed group fell as much as 30pc following the announcement. Close Brothers’ share price is down more than 60pc so far this year over fears about exposure to the FCA investigation.

The FCA is reviewing possible consumer harm over the historical mis-selling of car finance used to fund the purchase of second-hand vehicles.

The regulator i s due to decide whether compensation is owed to thousands of drivers by September.

As a significant player in the motor finance market, Close Brothers is bracing for a hit if the FCA finds that customers are owed redress.

The company sold motor finance through a network of 4,000 dealerships across the country.

The FCA i nvestigation i s going back to as early as 2007, leaving lenders uncertain about t he si ze of t he potential impact. A dividend, which analysts say is worth £100m, will not be paid to shareholders as a result, Close Brothers said.

The company, which is l ed by chief executive Adrian Sainsbury, will decide whether to reinstate the dividend next year once the FCA review concludes.

“There is significant uncertainty about the outcome of the FCA’S review, and the timing, scope and quantum of any potential financial impact on the group cannot be reliably estimated at present,” Close Brothers said over the dividend cut.

“It is a long-standing priority of the group to maintain a strong balance sheet and prudent approach to managing its financial resources.”

Loans made to people buying second-hand cars at dealerships boomed from 2011 onwards, rising to more than £40bn by 2022.

Close Brothers, with other banks such as Lloyds, Barclays and Santander, was involved in the sale of these loans t hrough dealerships. BMW and Mercedes also offered the products.

These loans often allowed the car dealerships to be paid commissions if they inflated the interest rates on the loans sold to customers to buy a car.