Close Brothers shares surge on £400m capital plan

Merchant banking group Close Brothers saw shares surge on Tuesday after it announced a raft of measures – including the suspension of dividends – to strengthen its capital position as it prepares for the conclusion of a regulatory probe into motor finance.

The Financial Conduct Authority's ongoing investigation has not yet financially impacted the company, and so no provisions were recognised in the first six months of its financial year, the company confirmed.

The probe centres around so-called discretionary commission arrangements or DCAs, through which lenders allowed motor dealers to use their discretion to land on interest rates within a certain range, leading to claims that consumers had been over-charged for car loans between 2007 and 2021.

"Significant uncertainty" still exits, Close Brothers said, and the "timing, scope and quantum of any potential financial impact on the group cannot be reliably estimated at present".

Along with the temporary suspension of its dividend for 2024, first announced in February, the company has taken other actions – from retaining earnings and cost management initiatives to significant risk transfer of assets and selective loan book growth to optimise risk weighted assets – in order to beef up its CET1 capital ratio by up to £400m by the end of 2025.

"The board is confident that these decisive actions will position the group well to withstand a range of scenarios and potential outcomes," the company said.

In other news, Close Brothers announced a "resilient" operating performance in the first half ended 31 January, with income down 1% at £470.8m but pre-tax operating profits up 702% at £93.8m.

The loan book increased by 4% to £9.9bn, while total client assets were up 7% at £18.5bn.

Shares were up more than 11% at 371.59p by 0904 GMT.