By Yamini Kalia
(Reuters) -Britain’s Secure Trust Bank issued a profit warning on Friday after a court ruling on motor finance sparked uncertainty across the industry, prompting some banks including the company, Metro Bank, and Close Brothers to pause new lending.
London’s Court of Appeal ruled in October that motor finance brokers must fully inform customers about commissions on new car loans, leading some lenders to temporarily pause writing and collecting such loans.
Shares of Close Brothers, Lloyds and others have fallen sharply since the ruling, while Santander’s UK bank postponed publication of its third-quarter results to assess its impact. Secure Trust’s shares plunged 22.3% to a record-low on Friday.
Metro Bank, which had temporarily paused completion of some asset finance deals, told Reuters it had finished a review and resumed operations as normal but did not disclose any impact from the review.
The ruling appears to have widened the scope of possible cases of mis-selling that could come under review, analysts say, making it harder to predict the full cost of compensation and creating more uncertainty for banks.
Secure Trust said the pause in loan collections led to a higher volume of loans reaching default status and, while it had restored collections to normal levels, it was taking longer than expected to recover funds.
As a result, annual underlying profit before tax would be 10-15 million pounds ($13-19 million) below market expectations, it said. Four analysts polled by LSEG had on average expected an annual pretax profit of 44.4 million pounds.
“We are disappointed that it will take longer than expected to recover value from the excess level of defaulted Vehicle Finance balances, and the recent Court of Appeal decisions have added additional uncertainty on the benefits to be realised in 2024,” Secure Trust CEO David McCreadie said in a statement.
The court ruling came as Britain’s finance regulator considered a potential billion pound-plus consumer redress scheme following customer complaints about overcharging on commission when buying a car.
($1 = 0.7720 pounds)
(Reporting by Yamini Kalia in Bengaluru; Additional reporting by Yadarisa Shabong; Editing by Subhranshu Sahu and Mark Potter)
