Source: Sharecast
The merchant bank said this was "broadly similar" to its existing provision of £294m. It also said the cost of the scheme can be "comfortably absorbed" by existing capital resources, leaving the group well positioned to continue delivering its strategy.
The redress scheme is expected to reduce the group’s CET 1 capital ratio by around 25 basis points to 14% but Close Brothers said this remains "comfortably ahead" of its medium-term target of 12% to 13%.
The company's estimate assumes around 720,000 UK regulated motor finance loans between 6 April 2007 and 1 November 2024 qualifying for redress under the scheme. This includes about 640,000 loans written under Discretionary Commission Arrangements (DCAs) and a further 80,000 non-DCA loans which are likely to meet the "tied" arrangements and/or "high commission" criteria as defined by the FCA.
It also assumes an average redress payment of approximately £500 per customer, including compensatory interest. This is below the FCA’s average estimate of £829 and reflects the relatively smaller loan sizes and lower commission levels of Close Brothers' motor finance loan book.
The group expects an estimated claim rate of 75%, in line with the FCA's assumption. It said that a 5% absolute increase or decrease in the assumed claim rate would result in a circa £18m increase or decrease in the estimate.
Delivery costs are estimated at around £66, Close Brothers said. This excludes circa £14m of costs already incurred against the existing provision.
"At this stage, no provision changes have been recognised," the company said. "The group's existing IAS 37 provision remains under review.
"The group will continue to closely monitor any further legal, regulatory and industry developments and is considering its next steps."
At 0945 BST, the shares were up 16.1% at 452.20p.
Broker Shore Capital said: "Following the significant increase in FirstRand’s provision yesterday and continued commentary from Viceroy suggesting a far larger outcome for Close Brothers, potentially threatening solvency, we believe the market is likely to be materially reassured by today’s update."
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