LONDON, Oct 28 (Reuters) – Shares of British lender Close Brothers (CBRO.L) experienced a significant decline of 6.5% on Monday, while its larger competitor Lloyds (LLOY.L) saw a 3% drop. This downturn is attributed to a recent court ruling that adversely affected banks with exposure to motor finance.
On Friday, a London court determined that motor finance brokers are required to fully disclose commission details to customers when they secure car loans. This ruling comes amid an ongoing review by the UK’s financial regulator into past sales practices within the motor finance industry.
Close Brothers, which analysts have identified as having the most significant exposure to motor finance, plummeted 21% on Friday, hitting a near 20-year low. The ruling also appears to expand the potential for reviewing cases of mis-selling.
In a statement on Monday, Lloyds acknowledged that the court ruling “establishes a higher standard for the disclosure and consent regarding the existence, nature, and amount of any commission paid,” a requirement that was previously not fully understood or applied within the industry.
Analysts are currently grappling with the potential financial ramifications of the ruling, with estimates suggesting that the total compensation costs for the sector could reach as high as £16 billion ($21 billion). If accurate, this would mark the most expensive consumer banking scandal in Britain since the payment protection insurance mis-selling crisis.
As investors assess the implications of the court’s decision on the overall compensation liabilities, bank shares continue to decline. Benjamin Toms, an analyst at RBC Capital Markets, noted, “The scope for retroactive claims may extend beyond the previously acknowledged 2007-2020 period, and any commission structure that did not clearly disclose the amount to customers could also fall under the judgment’s purview.”
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