Close Brothers absorbs £320m car finance compensation charge
Equity analysts covering UK lenders see lower capital-strain risk
Change
Close Brothers said it will absorb about £320m to cover its share of the UK Financial Conduct Authority's £9.1bn car finance compensation scheme and will fund the charge from existing capital resources.
Why it matters
Funding the charge from existing capital removes an immediate regulatory-capital squeeze for Close Brothers and prevents a compelled capital-raising decision. That preserves the group's capital available for lending and its stated strategy rather than forcing emergency measures such as asset disposals or equity issuance.
Implications
- — Treasury teams at Close Brothers — must retain current capital allocations immediately — failing to do so risks unnecessary equity issuance or asset disposals despite the bank's ability to fund the ~£320m charge from existing resources.
- — Management teams at UK banks with motor-finance portfolios — must recalculate expected compensation liabilities and top up capital provisions now — banks that delay risk forced asset sales or strategic disposals to meet regulatory capital requirements.
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Source
The Guardian
View on The Guardian