Major Car Loan Providers See Gains Following Revised Compensation Bill
Shares of the UK’s largest car loan providers experienced a significant rise yesterday following the announcement of a lower-than-expected compensation bill for the motor finance scandal. This development came as a relief to investors and the financial sector, which had anticipated higher costs.
Close Brothers, a major player in the FTSE 250, saw its stock close up by 5.4 per cent. Lloyds Banking Group also showed strong performance, with a 3.7 per cent increase, while Barclays rose by 1.1 per cent. These gains were attributed to the Financial Conduct Authority (FCA) finalizing a compensation bill of £11 billion for the unfair sale of 14.2 million car loans. Previously, the FCA had estimated the cost to be between £9 billion and £18 billion, making the final figure significantly more favorable than expected.
Jonathan Pierce, an analyst at Jefferies, remarked that the industry has “landed in a much better place than many feared.” The FCA’s ruling ensures that affected motorists will receive compensation averaging around £700. This decision follows the watchdog’s findings that lenders violated the law by failing to inform consumers about key details, such as high commissions paid to car dealers who facilitated the loans.
The total payout required from the industry is estimated to range between £8.2 billion and £9.7 billion. When factoring in the administrative costs of managing the compensation scheme, the overall bill reaches £11 billion. In the most severe cases, individuals could receive over £2,300 in compensation, with payouts starting from £500.
This scandal is one of the most costly in the financial sector, though it pales in comparison to the £50 billion banks faced for mis-selling payment protection insurance. Despite this, the impact on the industry remains substantial, with several major banks setting aside funds to cover potential costs.
Lloyds has allocated £1.2 billion to cover possible expenses, while Barclays has set aside £80 million. Close Brothers has reserved £165 million, and Santander has announced plans to set aside £295 million. Gary Greenwood, an equity analyst for Shore Capital, noted that the industry has already made provisions of approximately £2 billion, suggesting that further allocations may be necessary.
JLR Cyber Attack Impacts Vertu Motors
In a separate development, car dealer Vertu Motors has warned of a £5.5 million profit hit due to “significant disruption” caused by the Jaguar Land Rover (JLR) production halt. The luxury carmaker paused operations for five weeks after a cyber-attack, leaving many suppliers struggling to cope with the fallout.
Vertu reported record half-year sales of £2.5 billion for the period ending August 31. However, the company’s profits dipped by 10 per cent to £20 million. Despite these challenges, JLR has resumed production at some sites, signaling a gradual return to normal operations.
This situation highlights the far-reaching consequences of cyber threats on the automotive industry, particularly for dealers and suppliers reliant on stable production schedules. As JLR works to recover from the attack, the ripple effects on its partners continue to unfold.
