UPDATE: Close Brothers denies report by short seller Viceroy Research

Close Brothers Group PLC on Monday denied a report by short seller Viceroy Research, who said the company has ‘systematically misrepresented’ its exposure to the Financial Conduct Authority’s forthcoming motor finance consumer redress scheme.

The FCA is expected to publish the final rules on a compensation scheme for motor finance customers later this month. The scheme could see millions of motorists receive payments in the coming year for mis-selling.

In the report, Viceroy said a review of the FCA’s consultation paper, court transcripts and independent claims suggests that Close Brothers will have to ‘at least’ double its existing provisions.

Last October, Close Brothers nearly doubled its provision for motor finance compensation to £300 million from £165 million.

Viceroy said its analysis of FCA consultation paper CP25/27 and Supreme Court case law indicates that Close Brothers’ redress exposure ranges from £572 million to £1.07 billion, well above its current provision.

‘At these levels, the group’s CET1 ratio will approach regulatory breach thresholds,’ the Viceroy report said, noting Close Brothers has exhausted all available measures to sustain its capital base.

Viceroy said Close Brothers hasn’t ‘fully provisioned’ for the redress because ‘further provisions will breach CET1 regulatory capital restrictions and can create an equity wipeout event.’

Any further provisions risk pushing the firm below its minimum capital requirements, triggering: the suspension of additional tier coupons and possible write-down of the assets; credit rating downgrades to junk; and regulatory intervention for restructure, the report added.

In response, shares the London-based merchant bank closed down 14% at 357.60 pence each in London on Monday.

After market-close, Close Brothers said it ‘strongly disagrees’ with the report.

‘Our provisioning approach in relation to this matter is in accordance with UK-adopted international accounting standards and follows a robust governance process,’ the bank added.

Close Brothers is due to report half-year results on Tuesday, which will include a business update. ‘We look forward to updating the market on our financial performance and the business, strategy and market opportunity for our three lending divisions,’ Close Brothers said.

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