Shares in Close Brothers experienced a dramatic plunge on Monday, dropping as much as 12 percent during afternoon trading, following a stark warning from a notorious short-selling group. The FTSE 250 bank faced intense market pressure after Viceroy Research issued a research note alleging that Close Brothers has "systematically misrepresented" its exposure to the ongoing motor finance scandal.
Short-Seller's Dire Prediction
Viceroy Research, a group renowned for its exposés of companies like Wirecard and Home Reit, claimed that Close Brothers will need to "at least" double its existing provisions in light of the Financial Conduct Authority's forthcoming consumer redress scheme. The note highlighted that the bank, which is currently liable for approximately £300 million in the car mis-selling saga, has not fully provisioned for potential losses.
Regulatory Capital Concerns
The research firm argued that adequate provisioning would likely "breach" CET1 regulatory capital restrictions under a blue sky scenario, potentially leading to an "equity wipeout event." CET1 capital rules require banks to maintain a minimum ratio of risk-weighted assets; failure to comply can result in severe restrictions on dividends, share buybacks, and bonus payments.
"We believe Close Brothers has systematically misrepresented its exposure to the Financial Conduct Authority's forthcoming motor finance consumer redress scheme," the authors of the note stated emphatically. This allegation has sent shockwaves through the financial community, raising questions about the bank's financial stability and transparency.
Market Reaction and Implications
The sharp decline in Close Brothers' share price reflects growing investor anxiety over the bank's handling of the motor finance scandal. Viceroy Research, which profits from declines in its targets' share prices, has positioned itself to benefit from this downturn, adding a layer of controversy to the situation.
Close Brothers has been contacted for comment regarding these serious allegations, but as of now, no official response has been provided. This developing story underscores the broader challenges facing the financial sector, particularly in the wake of regulatory scrutiny and consumer redress schemes.
The motor finance scandal has already implicated several financial institutions, but Viceroy's warning suggests that Close Brothers may face more severe repercussions than previously anticipated. Investors and analysts will be closely monitoring the bank's next moves, as well as any regulatory developments from the Financial Conduct Authority.
