Shares in lenders surge after Supreme court ruling on car finance
Boom! Shares in lenders exposed to the UK car finance scandal have surged at the start of trading in London, as investors react to Friday night’s supreme court ruling.
Shares in Close Brothers jumped 27% after the stock market opened, after the court ruled in its favour in a case over car finance. Close Bros are leading the FTSE 250 index of medium-sized companies.
Lloyds Banking Group is leading the larger FTSE 100 share index – its shares have jumped by almost 6% in early trading.
As flagged earlier, Lloyds had previously set aside £1.2bn to cover compensation claims over car finance commissions paid to car dealers.
These share price moves are a clear sign that the Supreme court ruling is a win for the lenders, even though the FCA is now consulting on a compensation scheme for motorists.
That’s because the FCA estimates the cost of its scheme will be between £9bn and £18bn. Before the supreme court overturned two of the three rulings against the industry, lenders were facing an estimated bill of £44bn.
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Updated at 08.17 BST
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Shares in Barclays are up over 1.8% in early trading.
It had previously set aside £90m to cover potential motor finance compensation payouts.
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Shares in lenders surge after Supreme court ruling on car finance
Boom! Shares in lenders exposed to the UK car finance scandal have surged at the start of trading in London, as investors react to Friday night’s supreme court ruling.
Shares in Close Brothers jumped 27% after the stock market opened, after the court ruled in its favour in a case over car finance. Close Bros are leading the FTSE 250 index of medium-sized companies.
Lloyds Banking Group is leading the larger FTSE 100 share index – its shares have jumped by almost 6% in early trading.
As flagged earlier, Lloyds had previously set aside £1.2bn to cover compensation claims over car finance commissions paid to car dealers.
These share price moves are a clear sign that the Supreme court ruling is a win for the lenders, even though the FCA is now consulting on a compensation scheme for motorists.
That’s because the FCA estimates the cost of its scheme will be between £9bn and £18bn. Before the supreme court overturned two of the three rulings against the industry, lenders were facing an estimated bill of £44bn.
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Updated at 08.17 BST
The announcement of BP’s major oil discovery comes a day after energy producers agreed to boost output again.
The Opec+ group agreed on Sunday to raise oil production by 547,000 barrels per day for September, the latest in a series of accelerated hikes designed to regain market share.
The move means Opec+ has now fully reversed its largest tranche of output cuts, made as oil demand slumped after the Covid-19 pandemic.
The oil price is little changed this morning, though, with Brent crude up 0.25% at $69.83 per barrel.
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BP announces largest oil and gas discovery in 25 years
Away from the car finance scandal, BP has made its biggest largest oil discovery in 25 years, off the coast of Brazil.
BP has told the City that it has made a significant oil and gas discovery at the Bumerangue prospect in the deepwater offshore Brazil.
BP says it made the discovery after drilling an exploration well in the Santos Basin, 404 kilometres from Rio de Janeiro. The site has a water depth of 2,372 metres, and the well was drilled to a total depth of 5,855 metres.
It discovered a hydrocarbon column with an estimated depth of 500 metres, in a “pre-salt carbonate reservoir” with an area more than 300 square kilometres.
Gordon Birrell, BP’s executive vice president for Production & Operations says:
“We are excited to announce this significant discovery at Bumerangue, bp’s largest in 25 years. This is another success in what has been an exceptional year so far for our exploration team, underscoring our commitment to growing our upstream.
Brazil is an important country for bp, and our ambition is to explore the potential of establishing a material and advantaged production hub in the country.”
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Lawyer: compensation scheme could have significant ramifications for UK motor finance industry
The FCA’s decision to consult on an industry-wide compensation scheme for car finance customers could have “significant ramifications” for the UK motor finance industry, says Hyder Jumabhoy, partner at international law firm White & Case.
Jumabhoy explains:
“While it is too early to predict the full impact with certainty until the FCA’s consultation process is complete, we expect this move to accelerate M&A activity due to some lenders having decreased risk appetite but also because of unused provision amounts becoming available for acquisitions. It could also prompt some car manufacturers to enter the UK motor finance market to steady the supply of finance to buyers of new vehicles.
“The next six weeks in the run-up to the launch of the FCA’s consultation will be crucial, as the industry assess the implications of the Supreme Court’s ruling and the emerging shape of the scheme in 2026.”
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Lender S & U: Supreme court ruling is “victory for common sense”
Specialist financier S & U PLC has welcomed last week’s Supreme Court decisions on motor finance commissions as a “victory for common sense”.
Anthony Coombs, Chairman of S&U, argues the ruling will significantly boost confidence throughout the motor finance industry and benefit lenders and consumers alike in attracting investment and increasing competition.
In a statement to the City this morning, Coombs added:
As such, it is entirely consistent with the Treasury’s recent emphasis on regulation which encourages growth and which will, in the words of the Financial Conduct Authority, “ensure the integrity of the motor finance market, so that it works well for future consumers.”
S & U are the parent company of Advantage Finance, which they say has never used the discretionary commission arrangements which are at the heart of the car finance scandal.
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Updated at 07.48 BST
Close Brothers, who have been one of the UK’s biggest providers of car loans, has issued a short statement to the City this morning.
The firm says:
Further to the group’s announcement issued on 2 August, we note the announcement of the Financial Conduct Authority on 3 August of its intention to consult on an industry wide redress scheme in respect of motor finance commissions.
We look forward to engaging with the FCA in respect of the consultation.
On 2 August, Close Brothers said it “welcomes the outcome” of the supreme court ruling, adding that it “provides clarity on important legal and commercial principles.”
Back in March, the company posted a £103m loss for the first half of its financial year, and estimated that the motor finance commission scandal would cost it a total of £200m this year.
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Lloyds doesn’t expect ‘material’ change to car finance provisions
Lenders exposed to the car finance scandal are issuing statements this morning, ahead of the opening of the London stock exchange at 8am.
Lloyds Banking Group says it has undertaken an initial assessment of the impact of Friday’s supreme court judgment.
Lloyds, which had previously set aside £1.2bn to cover compensation payments, has told the City that “whilst the judgment announced on 1 August provides additional clarity, there remain a number of uncertainties that the Group continues to consider in its approach to provisioning.”
The bank says:
After initial assessment of the Supreme Court judgment, and pending resolution of the outstanding uncertainties, in particular the FCA redress scheme, the Group currently believes that if there is any change to the provision it is unlikely to be material in the context of the Group.
The provision will continue to be reviewed for any further information that becomes available, with an update provided as and when necessary.
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Introduction: City investors to give verdict on car finance scandal ruling
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
The latest twists in the UK car finance scandal could grip the City today, as investors try to estimate where the financial impact will land, and how heavy it will be.
Yesterday afternoon, Britain’s financial regulator said it would open a redress scheme for consumers who were treated unfairly when they bought a vehicle using car finance, and “secret” commission payment were made to car dealers.
The Financial Conduct Authority (FCA) will consult on the redress scheme, which could cost banks between £9bn and £18bn. Motorists who were mis-sold car finance were warned that they are likely to get less than £950 a claim.
Nikhil Rathi, chief executive of the FCA, said last night:
“It is clear that some firms have broken the law and our rules. It’s fair for their customers to be compensated. We also want to ensure that the market, relied on by millions each year, can continue to work well and consumers can get a fair deal.”
“Our aim is a compensation scheme that’s fair and easy to participate in, so there’s no need to use a claims management company or law firm. If you do, it will cost you a significant chunk of any money you get.”
“It will take time to establish a scheme but we hope to start getting people any money they are owed next year.”
The FCA is acting after the UK supreme court partly overturned a landmark Court of Appeal case on hidden car finance commission claims on Friday, a move that looks like a partial win for lenders.
The court rejected two claims which alleged that commissions paid to car dealers were bribes, and that dealers owed a duty of loyalty to the customer.
As my colleague Kalyeena Makortoff explains here, the court appears to have closed the door to compensation except in more serious cases, although they did uphold a third case of a customer, Marcus Johnson, concluding that he had been treated unfairly.
Martin Lewis, founder of MoneySavingExpert.com, has told Sky News the consultation is “likely to mean 40% of people who got a car finance deal between 2007 and 2021 will be due some form of redress, likely to be hundreds not thousands of pounds”.
The Supreme Court ruling came just after the London stock market close on Friday night.
The market reopens at 8am, so we’ll see how the City reacts to the verdict, and the FCA’s compensation scheme, shortly…
The agenda
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Updated at 07.27 BST