Close Brothers tumbles as short-seller Viceroy warns of potential 'wipeout'

(Sharecast News) - Close Brothers tumbled on Monday after short-seller Viceroy Research said the company has "systematically misrepresented" its exposure to the car finance scandal. Viceroy said in a research note that examination of the Financial Conduct Authority's redress scheme suggests that Close Brothers will have to "at least, double its existing provisions".

The short-seller, famous for its exposes on Wirecard and Home Reit, said Close Brothers has not fully provisioned for the redress because further provisions would breach CET1 regulatory capital restrictions and could create "an equity wipeout event".

Viceroy - which was founded in 2016 and describes itself as an "independent investigative research group" - said Close Brothers' redress exposure ranges from £572m to £1.2bn, which is well above its current provision of £300m.

The research firm's 'blue sky' outcome puts CBG at risk of regulatory intervention, while its base case indicates that equity-holders will be "substantially wiped out in a restructure".

Viceroy noted that in anticipation of regulatory fallout, management has already sold the asset management business and Winterflood Securities and cancelled dividends and implemented cost reductions. As a result, "Close Brothers has limited avenues to retain its CET1 rating if provisions increase," it said.

The research note came just a day before CBG is due to publish its half-year results.

The shares closed down 13.9% at 357.60p.

Last October, Close Brothers lifted its provision for the motor finance scandal from £165m to £300m. It said at the time that the ultimate cost could be materially higher or lower than the estimated provision depending on the outcome of the consultation and any further legal, regulatory or industry developments.

The company released a statement after the close of markets in which it said it "strongly disagrees" with the Viceroy report.

Close Brothers said its provisioning approach in relation to motor finance commissions and the resulting impact on its capital position was "in accordance with UK-adopted international accounting standards and follows a robust governance process".

"Close Brothers will release its half year results to 31 January 2026 on Tuesday, 17 March, alongside a business update," it said.

"We look forward to updating the market on our financial performance and the business, strategy and market opportunity for our three lending divisions."

Danni Hewson, head of financial analysis at AJ Bell, said: "The FCA is expected to publish the final rules on a compensation scheme for motor finance customers later this month which could see millions of motorists receiving payments in the coming year.

"The average payout is expected to come in around £700 but some could get a higher amount, and Viceroy has argued that Close Brothers would need to at least double the existing provision currently set aside to settle all its claims.

"Close Brothers is due give a regular update to markets tomorrow, with investors now closely watching to see if there are any changes to that headline figure."

According to Stockomendation, ActusRayPartners Limited and Systematica Investments Limited both have short positions in Close Brothers, of 0.82% and 0.51%, respectively.