Close Brothers stock surged on Wednesday after the specialist lender said the expected cost of the UK motor finance redress scheme would be broadly in line with money it had already set aside, easing investor concern after a recent short-seller attack.
The stock rose as much as 23% in early trading, with mid-morning gains still close to 18%, as the market welcomed signs that the hit from the compensation scheme may be manageable.
The move marked a sharp reversal for a lender whose shares had come under heavy pressure in March after Viceroy Research argued it had understated its exposure to the car-finance scandal.
Market reaction
Close Brothers said the scheme would cost about £320 million, or roughly $430 million, broadly in line with its existing provision.
That was enough to reassure investors that the final bill was unlikely to blow a fresh hole in the group’s balance sheet, despite a bruising few weeks in which questions about capital strength had dominated the investment case.
The lender’s shares had tumbled earlier in March after Viceroy said Close Brothers might need to at least double its provision, with estimates ranging from £572 million to more than £1 billion.
Wednesday’s update did not remove all uncertainty, but it did suggest the eventual charge may sit much closer to management’s assumptions than to the short seller’s more aggressive scenario.
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What Close Brothers expects
The group said the estimated cost would reduce its Common Equity Tier 1 ratio by about 25 basis points to 14% on a pro-forma basis as of 31 January 2026.
That would still leave it comfortably above its medium-term target range of 12% to 13%, a key point for investors worried that compensation costs might force more drastic capital measures.
Close Brothers said its estimate reflected assumptions including a 75% claim rate and average redress of about £500 per customer, below the industry average of £829 cited in the FCA’s policy statement.
The group also said delivery costs were expected to be about £66 million, excluding £14 million already incurred against the existing provision.
Background to the redress scheme
The update came days after the Financial Conduct Authority set out the framework for a motor finance consumer redress scheme, putting the total bill for lenders at about £9.1 billion.
The issue centres on discretionary commission arrangements in car loans, one of the biggest UK consumer-finance scandals in recent years and a growing overhang for banks and specialist lenders with motor-finance exposure.
Close Brothers is among the firms most closely watched because of its relatively concentrated exposure to motor finance.
The lender said on 30 March that it was assessing the implications of the FCA’s policy statement, and Wednesday’s market reaction suggests investors had feared a worse outcome.
What comes next
The latest update does not fully settle the issue.
Close Brothers said its existing provision remains under review, and the final outcome will still depend on legal, regulatory and industry developments as the scheme runs from summer 2026 to the end of 2027.
Even so, Wednesday’s rally indicates the market believes the lender has bought itself breathing room.
After weeks in which the narrative was dominated by questions over hidden losses and capital strain, the company has at least shown that its current reserves appear broadly aligned with the regulator’s framework, reducing the immediate risk of a much larger shock
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