Close Brothers slapped with a downgrade after rocky third-quarter
Close Brothers was handed a downgrade by Peel Hunt analysts on Friday after its third-quarter update did little to calm investor nerves.
The bank said fees and expenses were still at an “elevated level” in the recent quarter as net expenses jumped to £13.9m. This was up from £11.6m in the same period last year.
Complaints related to the motor finance scandal continued to haunt the lender after its landmark Supreme Court case in early April.
The Supreme Court is expected to rule on the use of discretionary commission arrangement in the motor finance market by early Summer.
The highest court in the land’s judgement and subsequent redress scheme “remains the main event,” Peel Hunt analysts Stephen Payne and Stuart Duncan said.
They reiterated a hold rating on the stock but made downgrades on accounts of a hit to the bank’s loan book.
Lending decreased 0.9 per cent in the quarter to £9.7bn, down 3.5 per cent year-on-year.
Analysts said earnings per share was estimated to be down four per cent for the full-year and seven and nine per cent for the two years following.
“In our view the valuation multiples continue to look cheap but this reflects the motor finance commissions uncertainty and depressed return on equity from the bank at present,” Duncan and Payne said.
Winterflood’s numbers slashed
The group’s Winterflood business was its saving grace of the quarter after it swung back to profitability from a boom in markets trading.
The arm, which is an execution service provider that offers for retail traders, division secured an operating profit of £0.4m after benefiting from the market turbulence in April triggered by President Donald Trump’s erratic tariff agenda.
This was a swing from the £800m loss in the first half but a steep decline from the £1.7m in profit scored in the third-quarter of 2024.
“This only modest pick-up leads us to rein-in our optimistic expectation on recovery for Winterflood, cutting our top-of-the-range forecasts for 2026 and 2027 to be more in line with consensus,” analysts said.
The lingering of the motor finance case continues to drive Close Brother’s stock woes. Its share price fell nearly seven per cent last week after it issued its trading update.
Over the last year, the stock has lost over 25 per cent. Recent rallies have helped it gain up to 360p, but it still trades well below the highs of 548.50p achieved in the summer of 2024.