Close Brothers Share Discussion Threads

[stoopid] 24/9/2024 12:40

The main reason that the FCA have put off the investigation and giving out fines and quantum is because Barclays have launched a judicial review into it challenging FCA's investigation.

[thebutler] 24/9/2024 11:53

Bloody hell, what a load of waffle!!!

[chriss911911] 24/9/2024 10:51

this is a binary bet on FCA outcome, if Close has 0.4bn in cash to pay out, that's nice, but then 0.4bn out of equity means their tier 1 ratio gets fried down to 9.8%, based on their recent update, after allowing for recent sale, which they claim will help by 100 basis points, so sailing close to regulator limit.

I don't know if 0.4bn is right any more than anyone else, it could I suppose end up at zero, but at this point very unlikely. Some analysts say 13bn exposure for industry, Close is 4.6% of that industry, so if it is average exposure would be a bit higher payout. But, and it's a big but, some analysts suggest Close is more exposed than average to commission-based models, so that would put an even higher share of industry exposure. Why are the FCA taking so long, I speculate balancing consumer and industry fall out is challenging otherwise we would have had the update already, so for me that was another red flag.

More red flags go up when Close sell business, and then hold as cash, implying they expect a more meaningful payout, but they are taking steps to better address it, but remain uncertain. Either way it's a big drop in equity value relative to risk assets if that cash ends up out to door to consumer, and thus off the value of regulator equity v risk equity so then how to restore capitalisation, more sale of risk assets, or equity raise. At this stage the price could be anything given that uncertainty and scale depending on where sentiment is for FCA outcome.

[karv1] 24/9/2024 09:32

Only number we know as a fact is 2015 final results says 300k total customer on motor loans. Between 2015to 2021 being just as large as all the money lent out from 2007to 2015. I estimated another 100k,but this does includes pre 2007 but pre 2007the loan book was tiny.

[riverman77] 24/9/2024 09:17

Karv1 - I don't think anyone is expecting all of those 400k customers (if that is the right number) to be caught up in this. It would only be a small proportion of those cases meeting specific criteria which are deemed to be in breach of the rules.

[jubberjim] 24/9/2024 09:12

Face it chaps

This is a volatile stock no real depth and so you need to take a wild punt or have very deep pockets.

The slightest bit of an interest to buy or sell the price moves away at a rate of knots no matter the amount of shares in question.

Yesterday I was in looking to buy a small amount 2000 shares left a bid @ 401.65 and sent the market into full blown panic spread widened and moved up immediately.

No point trying to take a position in the face of such a spineless market.

Have given it up as a bad job and will stick to dividend driven shares but they too are suffering from the fear pervading the market.

Good luck to those that persevere but the sooner we have a restoration or an inkling as to the dividend being restored will we be able to move on.

Pleased to be out for the time being

Take care

[karv1] 24/9/2024 09:00

Hi as a former holder and possible future holder. I have defended and attacked this stock. And estimates have been used from analyst by me and others.
Anyone can explain to me where I am going wrong on my calculations.
Facts in 2015 they had over 300k of motor customers ,the loan book seems to be just as big from 2015 to 2021 with average bigger loans, so I think 400k of customers is a conservative number of customers.
Looking at what the FCA claims on the old style contract review, claims people over paid by 1k on average.
So we got 400k x commission and 400k time the over paid interest plus 8% standard per year=way way more than the analyst amounts.
This is worst case and if banks get blamed with everything,
Genuine question what am I missing in my basic calculations.

[stoopid] 24/9/2024 08:26

Well said and well put!Also, he's wrong factually on certain points like the future sale of Winterflood he suggests might have to happen.This is part of CBAM and already sold.

[popit] 23/9/2024 20:12

chris

You seem to be scaremongering without having any real evidence for anything.

CBG have clearly stated all of the steps they are taking to strengthen their capital by £400 million and at the present time, and without knowing the results of the FCA enquiry, that is as much as the bank can possibly do.

Every broker and financial analyst who has looked at the situation with CBG has estimated a potential liability at far below this figure of £400 million and the average estimate by analysts is about £150 million or £200 million.

No financial analyst in the UK or any financial journalist in the UK has spoken about the alarming things that you are writing about here such as “liquidity crisis” or “raising new equity” or “will get very ugly from here”. You seem to be the only person talking about these things, and without having any evidence for any of these things.

There will possibly be many small shareholders on these boards who may read your scaremongering and alarming language and who may get scared out of their shares at an extremely low price.

If the company had any evidence for any of these alarming things that you talk about here then I am sure that they would have informed the market about any such problems at the very earliest time.

The board however clearly has no evidence of any of the things that you talk about here, and in the results last week they clearly stated “The board of Close Brothers remains confident that these actions that we have taken leave the group well positioned to navigate the current uncertainty.”

Not quite sure what your motives are here, perhaps you are short selling and trying to get the price down, or perhaps you just like scaremongering, but you should be careful about using such alarming language about a large UK bank on a public share discussion board without having any real evidence for anything.

[stoopid] 23/9/2024 12:57

So, although they have made no provisions in the results, CBG have already stated they are setting aside £400m for it. They have raised (or will) raise that by retaining this year's divi, selling CBAM, (which includes winterflood by the way) and making an operating profit of £142m this year. That means as long as the FCA hit is 400m or under there is no threat to their solvency or capital ratios as the liquidity raised will cover the liabilities.

[davius] 23/9/2024 12:50

Fiscal, easily done. I took profits but far too early to see them romp up another pound after I'd sold. Keeping an eye out for a re-entry soon...

[chriss911911] 23/9/2024 12:36

Suetballs, I think a going concern statement would point to material uncertainty, but yes they are not obliged to do one for interims, but arguably they should, an auditors would probably want to see a mitigation plan, in that, the bank may be required to submit a plan detailing how it intends to restore its Tier 1 capital, should the FCA ruling not go favourably triggering a liquidity crisis. So counter measures, would be raising new equity or selling assets to reduce risk-weighted assets, it looks they are trying to get ahead of that, already but are not satisfied it is enough, otherwise they would be obliged to say if they managed to removed or substantially reduce, a material uncertainty, they don't do it, that's why shares are tanking in my view. Close motor finance loan book is 400% the market cap, Lloyds bank to compare it is just 12%, I doubt the exposure to commission based lend is same in Close, so the relative exposure for Close, is even more skewed (that is worse), either way a liquidity crisis is a very real risk which is why I think it will get very ugly from here, as has already following the update and continues to do so, doesn't help their liquidity ratio fell in any case, without so far any adverse FCA cash out.

[fiscal cliff] 23/9/2024 12:17

Annoyed with myself here. Have been well in profit on two occasions. Failed to take it, convinced it was better to hold rather than sell. Now looking at losses on all tranches.

[suetballs] 23/9/2024 11:43

I see that Preliminary Results do not require an audit report.
I would be interesting to see what the auditors would have said if there was a requirement.
cbg may not be a going concern? - now that would put cat amongst the pigeons!
Despite the current negativity I see long term upside here.
Suet

[chriss911911] 23/9/2024 10:30

Analyst, put the potential FCA bill at 13bn for industry, being about 28% of loan book if a provider has "average" exposure. But Close Brothers are the most exposed bank not just in size but on style of business, because they work exclusively through resellers.

So Close will have higher % exposure, but if you think that is not the case and it will be "average", you’re looking at a bill of 0.5bn bill if the FCA ruling which is delayed is likely to be that large, because it is delayed, it seems more likely than not to be large, I had hoped for clarity Sep, it didn't happen, which to me is expect bad news come May.

Exposure that big is not far off current market cap. Or if you believe they should have higher mix, because they do mostly commission based lend, v Lloyds, then even 0.5bn, is not enough, and will be much higher, putting at risk their capital adequacy and forcing more sales or equity injection. Given their SET ratio fell further in July. A 0.5m outflow would put them below minimum level of 9%, so they will need something else to bridge the gap, from a liquidity /risk asset point of view.

Underlying earnings missed guidance by 15%, and they have sold off a modest 9% of earnings, and lowered growth to just 2%, so they are under performing industry, so the underlying business is not doing as well as they hoped and had guided on.

Lloyds have a large market cap so have booked the low end of provisions for FCA, being 0.4m, analysts have established it could be as high as 1.2bn for Lloyds, who don't write the same mix of commission-based business as Close, although have 2x the book size.

Explains a lot why Close cannot provision anything, to do so would trigger a much bigger problem, so they are dependent on a more favorable FCA outcome, if it were manageable, they would book it, but they cannot, so their position is wholly dependent on one event, for that reason, the share price will be highly volatile. A share price at £4.00 implies a more favorable FCA outcome, which is so far uncertain and given the FCA delay, increasingly unlikely to be good news for lenders, so I see more chance this heading south, than north over the next months.

[sbb1x] 23/9/2024 10:06

Just drop it to 390s and stop messing about

[chriss911911] 23/9/2024 07:11

the earnings using peer average pe underpins market cap where it is now, without any allowance for downside on motor claims, just check out how cheap banks are now, certainly OSB is an example where the forward outlook is somewhat more positive, and cheaper than Close, without the FCA overhang, so why buy Close now, when you can invest in that for less , and without the extra risk?

When you consider the loan book close have is half that of lloyds yet lloyds are 60x bigger bank, but close are more exposed to commission based, analyst have said close is "more exposed" than any other bank, and that is not a doubt. Close have done nothing to overcome those comments.

What is a doubt how far the FCA will go, for me it's just that could do so much damage to the business, it is not manageable at the moment and they have made no attempt to put boundaries around suggesting it is alot more critical.

I was hoping to see something to be able invest in, they did nothing to reassure, this will just keep falling, til we ring in the new year as I see nothing positive to turn that tide near term, with anything upto £5 the max it can trade at, but high chance it can retest lows, so there is not the reasons to invest at this time.

[popit] 22/9/2024 01:08

Interesting comment about CBG from a poster on the LSE site two days ago after the 2024 year end results :

“The reality is that CBG is in fine fettle. It raised the required £400m within months and now has close to £2bn of capital. In the highly improbable case of needing more, it can package up and sell its loan book which, with a NIM over 7% and a delinquency of under 2%, will sell at a healthy premium to face, say 4% for each year of duration. Private credit will snap that up overnight.”

“In fact, the ability to generate such loans on a continuing basis makes CBG itself attractive to private credit, not merely it's loan book. Adding all the components together - capital, loan premium, value as a going concern, all calculable within a reasonable degree of certainty - gets you comfortably above £2.5 bn, or £16 a share.”

“A £450m hit from the FCA brings it down to £13, double that, down to £10, 15x PE, at which point we are writing down more than half the face value of all the motor finance loans at issue, excessive by any measure. There will be many suitors from private credit. Oaktree comes to mind.”

“You just have to hang on for the best part of a year for the FCA settlement. I can wait.”

[popit] 21/9/2024 19:00

If you wait until CBG resumes the dividend after the FCA enquiry then you will probably be paying nearer to £8 for the shares

If by far the most pessimistic forecast from analysts is £350 million, and the average forecast from analysts is £150 million, and the lowest is £50 million, then you have to assume that between £150 million and £200 million is the most likely

CBG have already taken steps to increase their capital by £400 million and so the most likely FCA liability has already been easily covered

The actual figure could also be even nearer to zero if Barclays win their case or if the FCA finds that there was not much fault

If that happens, or even if the average forecast of between £150 million and £200 million is correct, then the shares will very likely return to above the £8 that they were at before the enquiry

[tsmith2] 21/9/2024 09:35

makes sense to me

[jubberjim] 21/9/2024 07:18

Glad I waited

I didn't understand the rationale behind the move up to 550 but having sold previously at 490 was far from amused.

This move down today just and the way the spread widens tells me there is an issue with liquidity and not too many players contrary to the comments bandied about on these boards.

Was very tempted by the fall today but in such a thin market you are on a hiding to nothing 'easy to get in but a bark to get out off'
Under the circumstances I prefer to keep the shirt on my back rather than risk losing it in an increasingly erratic and nervous market.

Who is to say it won't revisit the previous lows and while certain investors make the case for keeping the dividend in house that cuts no ice with me.

Dividends are why I am invested and until there is news regarding dividends being resumed I can see this coming under further pressure.

Better dividend paying companies abound so that is where I will be focusing my gaze

Good luck hope it turns round for you all

[stoopid] 21/9/2024 06:50

Well said.

[popit] 21/9/2024 02:00

chris

RBC is by far the most pessimistic broker about the possible motor liability for CBG and they have a Target Price for CBG shares of £6.20

So the upside for CBG shares is significant even according to the most pessimistic RBC forecast of a total liability of £350 million

Most other brokers and analysts have a total liability for CBG of somewhere between £100 million and £200 million and CBG have already set aside far more than this by strengthening their capital by over £400 million

Remember the dividend that was not paid for 2024 saved £100 million for CBG and if CBG do the same again for 2025 then the £200 million saved can be expected to cover almost every liability that has been forecast by analysts

The shares have also already fallen by over £600 million since the FCA news and so many would say that the CBG share price has already fallen by about twice the most pessimistic forecast liability of £350 million from RBC

The early share price reaction to the good results on Thursday was to rise to £5.50 as the eps of 76p would suggest that a dividend of about 40p will be easily affordable in 2026 at the latest and perhaps also in 2025

The selling that then took the shares below £5 did not seem to have any rational reason behind it

The results were good and the outlook was good and the sale of CBAM for £200 million will also make the balance sheet even stronger going forward and CBAM was also not a very significant contribution to CBG profits anyway

So if even the most pessimistic broker RBC sees a significant upside of £6.20 for the CBG share price with a total motor liability of £350 million, then the lower and the average expected liability of somewhere between £100 million and £200 million will probably see a share price for CBG significantly higher than £6.20

[tsmith2] 20/9/2024 19:42

I've bought the dip in a meaningful way