Introduction
Close Brothers shares just dropped 4% despite the bank’s massive Supreme Court victory in their motor finance case. Analysts hit the downgrade button on Close Brothers stock, moving from ‘Outperform’ to ‘Sector Perform’ rating.
The FTSE 250 bank’s share price fell to 494.80p, even after gaining 110% year-to-date following the motor finance ruling triumph.
Here’s why analysts think the party’s over for Close Brothers shares, even after their biggest courtroom victory.
Close Brothers Supreme Court Victory Wasn’t Enough
Motor Finance Ruling Success vs Stock Downgrade
Close Brothers successfully overturned the Court of Appeal’s motor finance ruling last month – a decision that had previously sent Close Brothers shares crashing to devastating lows of 185p. The Supreme Court motor finance win was supposed to be the turning point.
But, the kicker: RBC analysts just downgraded Close Brothers stock from ‘Outperform’ to ‘Sector Perform’. Their reasoning? “We have run out of upside,” says equity analyst Benjamin Toms.
Close Brothers Share Price Valuation Analysis
The bank’s trading metrics reveal the market sentiment. Close Brothers’ Price-to-Tangible-Book-Value sits at just 0.48 – significantly below other UK banks. This Close Brothers stock valuation suggests the market still doesn’t rate them highly compared to banking sector peers.
Close Brothers Business Restructure and Asset Sales
Strategic Operations Overhaul
Close Brothers isn’t sitting idle. The bank is executing a major restructure strategy, offloading non-core assets faster than you can say “efficiency drive.”
Recent Close Brothers asset disposals include:
- Winterflood (execution services) – sold to Marex for £100m
- Oaktree Capital Management – Close Brothers divested for up to £200m
- Brewery operations – ditched entirely from Close Brothers portfolio
- Premium finance division – scaling back personal lines to focus on commercial insurance
Close Brothers Financial Outlook and Profit Projections
RBC’s Close Brothers earnings forecast paints a sobering picture:
- Total income up just 1% to £762m in the coming year
- Then a 5% drop in 2026
- Followed by a 10% fall in 2027
The silver lining? Close Brothers operational costs should tumble 17% by 2027 as the overhaul strategy takes effect.
Motor Finance Scandal: FCA Redress Scheme Impact
Financial Conduct Authority Compensation Plans
The Financial Conduct Authority confirmed they’ll establish an industry-wide motor finance redress scheme costing between £9bn and £18bn. That’s still eye-watering, but significantly better than the £30bn+ motor finance compensation analysts initially feared.
Close Brothers has already provisioned £165m for their motor finance liability – roughly in line with RBC’s Close Brothers exposure projections.
Motor Finance Claims Timeline Controversy
The FCA wants to accept motor finance mis-selling claims dating back to 2007, which has trade associations up in arms calling it “impractical.” FCA chief Nikhil Rathi’s response to motor finance lenders? Stop haggling and start fixing things for consumers affected by motor finance commission scandals.
Conclusion
The Supreme Court motor finance win was huge, but it’s already baked into Close Brothers share price performance. With analysts cutting Close Brothers stock targets and the FCA’s motor finance redress scheme looming, investors need concrete results from the operational overhaul.
Bottom line: Close Brothers stock trades at a discount for valid reasons, and September’s Close Brothers results will show whether that valuation gap is justified.
FAQ
Q1: Why did Close Brothers shares fall despite winning the Supreme Court motor finance case?
A: Analysts believe the positive motor finance Supreme Court outcome was already priced into Close Brothers stock after its 110% year-to-date gain. RBC downgraded Close Brothers shares saying they’ve “run out of upside.”
Q2: How much will the motor finance scandal cost Close Brothers?
A: Close Brothers has provisioned £165m for motor finance liabilities, which RBC analysts think accurately reflects their exposure. The industry-wide motor finance redress bill could hit £18bn according to FCA estimates.
Q3: What assets has Close Brothers sold in its restructure strategy?
A: Major Close Brothers disposals include Winterflood (£100m), Oaktree Capital (£200m), their brewery operations, and they’re scaling back premium finance business operations.
Q4: Is Close Brothers stock undervalued compared to other UK banks?
A: Yes – Close Brothers’ Price-to-Tangible-Book-Value of 0.48 is well below UK banking sector peers, suggesting the market still sees significant risks in Close Brothers shares.
Q5: When will investors get more clarity on Close Brothers’ future strategy?
A: Close Brothers full-year results in September should include revised profit targets and more detail on their operational restructure plans and motor finance provision adequacy.
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Effective Date: 15th July 2025
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