Close Brothers shares downgraded despite motor finance victory

Close Brothers has seen its shares slide over 4% in early trading to 494.80p, despite a recent legal win that had bolstered investor sentiment.

Analysts downgraded the FTSE 250-listed bank’s stock to “Sector Perform” from a previous “Outperform” rating, as reported by City AM.

The move follows the bank’s Supreme Court victory on August 1st, which overturned a Court of Appeal ruling on motor finance commissions. The earlier judgment had sent Close Brothers’ stock tumbling to lows of 185.00p, but the top court’s reversal helped shares stage a dramatic recovery climbing more than 110% year-to-date.

The bank is expected to update its profit guidance when it reports full-year results in September. While the Supreme Court ruling eased fears of crippling liabilities, uncertainty still lingers over potential costs.

The Financial Conduct Authority (FCA) confirmed it would consult on an industry-wide redress scheme related to historic motor finance practices, expected to cost between £9bn and £18bn – far lower than the £30bn-plus some analysts had initially feared. Close Brothers has already set aside £165m for potential claims, with RBC estimating its exposure to be broadly in line with provisions.

Strategic overhaul underway

Close Brothers is also in the midst of a major restructuring aimed at cutting costs and refocusing operations.

The company has sold its brewery arm and Winterflood, an execution services specialist, to Marex in a £100m deal due to complete in 2026; it has offloaded its stake in Oaktree Capital Management in March for up to £200m; and scaled back lending in its premium finance division, pivoting away from personal insurance lines toward corporate-focused products such as property and liability cover.

Analysts at RBC forecast total group income to rise 1% in the upcoming financial year to £762m, before sliding 5% in 2026 and 10% in 2027. However, operating costs are expected to fall 17% by 2027 as the restructuring takes effect.