Berenberg lifts Close Brothers target as regulatory risks reduce

The stock was up 8.5% at 376.64p by 1106 GMT, following a 2.9% jump the previous session after the company announced a raft of measures – including the suspension of dividends – to strengthen its capital position by £400m as it prepares for the conclusion of a Financial Conduct Authority investigation into motor finance, which centres around so-called discretionary commission arrangements. Through DCAs, 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.

Berenberg said that actions, which could provide around 390 basis points of capital support, "help to alleviate risks to the bank’s potential large and uncertain motor finance redress costs".

The broker added: "While uncertainty remains high, with the bank’s share price still down c55% ytd, growth in Close Brothers’ core businesses is also reassuringly resilient."

Berenberg upped its target price from 425p to 470p, saying it now values the bank at 0.4 times tangible book value, up from 0.3 times currently.

"We maintain our 'buy' rating, but acknowledge risks may be too great to bear for many investors."