Close Brothers motor finance uncertainty drove the FTSE 250 lender’s shares down nearly 9% on Monday morning to 401.70p after RBC slashed its price target and downgraded the stock, warning the bank was on course to deliver the lowest value creation of any of Europe’s top 50 banks over the next three years.
RBC cut its price target to 470p from 625p and moved its rating to ‘sector perform’ from ‘outperform’, according to a Yahoo Finance report on the RBC downgrade. The broker also stripped a forecast 5p dividend payout for the 2026 financial year from its model, expecting the bank to skip the payment entirely.
Motor finance clouds Close Brothers dividend outlook
‘The motor finance issue has, again, become increasingly uncertain, protracted, with a wider impact range (in both directions),’ Benjamin Toms, RBC equity analyst, wrote.
The bank’s chief executive, Mike Morgan, set the tone in March: ‘Until we have clarity around what the capital position of the group is, then it would be very difficult to restart the dividend.’
That conservative stance will cost shareholders dearly in relative terms. RBC projects Close Brothers will deliver just 2% value creation by 2028, measured against a combined metric of net worth growth and dividend payments. The European sector average for the same period is 15%. The bank had been an outperformer since 2014, recording 10% value creation against a peer average of 3%.
Close Brothers had held the record as the only quoted UK bank to maintain its dividend for 30 unbroken years without state support, a distinction it has now lost to the motor finance fallout.
The bank provisioned £320 million for motor finance commission claims as of its Q3 2026 trading update, including a £30 million charge recognised in that quarter, according to the Close Brothers Q3 2026 trading update. That figure supersedes the £300m the bank had previously disclosed. Separately, the update showed a year-to-date net interest margin of 7.0% and a loan book of £9.3 billion, up 1% in the quarter.
RBC estimates the bank’s share of potential additional admin costs tied to the redress scheme could reach nearly £200 million, stripping around 230 basis points from its CET1 capital ratio.
FCA redress scheme suspended as legal challenges mount
The backdrop has grown more complex. The Financial Conduct Authority (FCA) suspended parts of its motor finance redress scheme on 2 July 2026 following an Upper Tribunal order, with legal proceedings expected to be heard in December or February, Reuters reported. The challenges came from Credit Agricole, Consumer Voice, and the financial services arms of Volkswagen and Mercedes-Benz.
The FCA’s scheme, valued at approximately £9.1 billion, covers consumers who used finance to buy a car, motorbike or van between 6 April 2007 and 1 November 2024, as set out by the Consumer Council. The FCA published its policy statement on the scheme on 30 March 2026, dividing it into two phases due to concerns that earlier dates in the first phase could face legal challenge, according to Mayer Brown’s analysis of the FCA policy statement.
If the scheme is overturned, the FCA estimates lenders face an additional £6.3 billion in admin costs. Close Brothers was one of two banks that challenged the original Court of Appeal ruling at the Supreme Court. Lenders secured a partial win there, but the judgment left the FCA room to proceed with an industry-wide scheme.
The FCA sent letters to more than 100 motor finance firms this month raising concerns about implementation plans for the redress programme.
Alongside the motor finance exposure, Close Brothers is cutting around 600 full-time roles. Analysts estimate the restructuring could eliminate roughly 7% of total costs over the next 12 months, amounting to near £32 million in savings, according to City AM’s cost efficiency analysis.
The downgrade follows a brief rally. Shore Capital upgraded Close Brothers to buy on Friday, lifting its target price to 495p from 490p, implying around 21% upside. Analyst Gary Greenwood said investors were ‘adequately compensated’ for the risks, with the stock having drifted toward 400p without any ‘meaningful deterioration’ in fundamentals. That note helped push shares 7% higher on Friday before Monday’s reversal.
The December or February tribunal hearing on the FCA scheme’s legal challenges is now the critical staging post for the Close Brothers motor finance story.
