Secure Trust Bank Share Discussion Threads

[p1nkfish] 24/12/2024 18:21

The car side alone, if the figures are as others suggest, will be enough to finish off STB.

[flyfisher] 24/12/2024 18:11

pinkfish,

'However, all bets are off if it rolls over to all consumer credit and the implications are awful for the whole credit sector.'

The exact reason that parts of the legal action will be rolled back upon the supreme court appeal.

[p1nkfish] 24/12/2024 12:51

Isn't STB probably toast then if those figures are close to correct and costs are as roughly estimated?

The 900K was estimated from the FCA info in November 2024, 1% of those was based on the STB being a very small player, hence 9K so far. There was a number bouncing around some time that STB peaked at 1% of the market as crowded out but the likes of Lloyds, Barclays, Close Brothers ++.

If your numbers are correct then STB may not survive the hit. Tragic.

[chabuddy] 24/12/2024 11:53

9k is almost certainly too low, unfortunately! I would note that the number of claims being pursued has likely accelerated since 2024Q1 (just look at the proliferation of CMCs advertising). I prefer looking at STB's new business lending volumes and backing out # of claims from that, but if you assume a 1% market share throughout the period, 50% claim rate, and 2m cars purchased on finance each year in the UK, that gets us to 10k claims a year. That would get you to similar figures to those I estimated below.

[p1nkfish] 23/12/2024 22:16

Does 9K cases appear too low?
What cost on average per?
£1.8M for admin if that element comes in at about £200 per claim on 9K cases.
I find it hard to picture a £50M cost to STB for this.

However, all bets are off if it rolls over to all consumer credit and the implications are awful for the whole credit sector. Truly existential in that case.

[p1nkfish] 23/12/2024 22:11

In total estimating something towards 820K complaints, say 900K by end of January 2025.

Somewhere, sorry I can't remember where, it was estimated Secure Trust were 1% of the market at their peak. If so that's 9K?? However, not sure if that is 1% by volume or 1% by finance value. Also, at peak, other times they were lower.

FCA - "In the period January to March 2024, the major banks and non-bank lenders representing 82% of the consumer motor finance market had received around 335,000 DCA complaints."

STB stopped in 2017 and........"We sometimes operated these arrangements until June 2017, ahead of the FCA banning their use in January 2021. We believe that the overall proportion of loans where we used discretionary commission arrangements was small and for a shorter period, relative to the industry in general."

FCA - "The FCA has estimated that there could be over 470,000 motor finance non-DCA commission complaints made by the end of January 2025."

470K + 335K + extras - approx 900K?

[chabuddy] 23/12/2024 21:04

Hi both, @p1nkfish good point r.e. lending to cover the cost of car stock. I couldn't see any breakdown of lending volume in this regard, although this would lower damages. I just assumed all new lending volumes went to financing loans for consumers who are eligible to claim damage.

I obtained these figures purely by summing up new lending volumes in their motor finance division to date (although I had to guess new lending volumes in 2009). The 2.5% came from a SS report -- I cede that this could indeed be much higher, especially on lower value cars! Running the numbers through on my base case again (which assumes all commissions are fair game) with 5% commission yields £61.15m in damages.

Perhaps disclosing % of lending volume that financed consumer loans for these cars would be a good start. Maybe # of claims they have received to date. Unsure what value there would be in telling us the provisions they have set aside, however -- seems to be a shot in the dark for everyone at the moment. With repayment of TFSME as well, will definitely be a tough year.

[buffett4] 23/12/2024 20:35

I have worked in the car finance industry for the last 30 years and have brokered deals on to Moneyway for the last decade or so. The lenders followed the FCA guidelines regarding commission disclosure which did not require consent for the exact level of commission. As a result, none of the lenders gained consent for the exact amount of commission, STB included, up until the recent ruling.

[p1nkfish] 23/12/2024 20:13

b4, please point to where you found this information.

"STB had not sought consent for the exact commission amount up until the court ruling a month or so ago."

[digger18] 23/12/2024 19:59

Well UBS group seem to happy to take a stake!

[buffett4] 23/12/2024 19:14

It is my understanding that in common with the industry as a whole, STB had not sought consent for the exact commission amount up until the court ruling a month or so ago. With that in mind it seems reasonable to include all deals written up to say October 2024. How did you arrive at the £2.11 billion in car finance lending since inception up to FY 2023? I think 2.5% of the loan amount is far too low, it is reasonable to at least double that and probably more I'm afraid.

[p1nkfish] 23/12/2024 19:08

It's too complex without guidance from STB.

If the £1.04Bn is correct does it include lending to cover the cost of car stock, that is not consumer car finance lending and shouldn't be "fair game"?

As for the £2.11Bn, we don't know what the effect of changes made by STB in 2021 are.

"STB had ~ £1.04bn in motor finance new business lending between its creation in 2009 and FY2020, with this increasing to ~ £2.11bn if we measure up until FY2023."

In the absence of any clarity I would expect the market to assume the worst.

[chabuddy] 23/12/2024 18:58

In my head, I am trying to plan for the worst, which involves assuming that every commission is being looked at, irrespective of whether a DCA is used. However, once you consider such a scenario, it is not the settlement fee but rather the administrative costs that will be burdensome. This is a cost that STB is already incurring (and will largely have to incur irrespective of the Supreme Court's ruling).

STB had ~ £1.04bn in motor finance new business lending between its creation in 2009 and FY2020, with this increasing to ~ £2.11bn if we measure up until FY2023.

Assuming that 50% of those who took out deals claim, that 75% of the deals are found to be unfair, and that dealer commission was 2.5% of the loan amount, compensation for loans up until 2020 (including interest at 8% for 10 years) would be £17.56m.

If we assume that the average loan amount was £4k, the implied number of claims over the period would be ~130k, and with an estimated administrative cost of £200/claim, this would yield an administrative cost of £26.02m.

In other words, out of the estimated base cost of £43.58m, administrative costs account for ~60%. Assuming that loans up until FY2023 are also included, the total cost rises to £88.5m, with £52.84m being due to administrative costs. The implication here is that over 50% of the total cost to STB is fixed, and won't change based on the Supreme Court ruling.

The most sensitive input towards total cost calculation is the claim rate (the % of eligible claimants who initiate a claims process). Given ~£100m came off of STB's market cap due to the motor finance scandal, it looks like the the market is pricing in a scenario that leans towards my downside, which involves all motor finance loans ever issued being considered fair game.

[digger18] 19/12/2024 11:06

Where does personal responsibility and due diligence come into this? Nanny state just gets bigger by the day, it seems to be always somebody else’s fault. Ultimately consumers will pay, as will tax payers.

[p1nkfish] 18/12/2024 11:45

Barclays appealing. Hard to see any bank being able to change the likely outcome unless shown to be very expensive to future customers or big negative economic impact.

[future financier] 18/12/2024 10:38

Seems to have found its floor ............ for now!

[davebowler] 12/12/2024 12:21

hTTps://www.thisismoney.co.uk/money/markets/article-14182815/Close-Brothers-given-right-appeal-against-motor-finance-scandal-court-ruling.html

[p1nkfish] 11/12/2024 15:27

MSE had an interesting comment yesterday highlighting that ultimately the consumer can suffer due to future lack of lending, tighter credit and higher costs. Law firms will benefit, hence so keen to comment.

[diku] 11/12/2024 14:24

No doubt lawyers on both sides will be sharpening their pencils now...

[p1nkfish] 10/12/2024 17:08

All we need to know is what STB is on the hook for.
Just one thing.

[pvb] 10/12/2024 16:49

Car finance scandal could be as big as PPI, City regulator says



FCA lawyer admits scale of compensation could be larger than first thought, and as big as PPI, which cost banks £50bn

[flyfisher] 09/12/2024 10:17

The judicial review of the Barclays vs Miss L case commenced in mid october.
The result of that case may give some clarity to the broader case which is going to the supreme court.

[red ninja] 09/12/2024 09:41

Yes, I wondered if we would see a buy RNS, but no sign of one. Did market makers take it on knowing they could sell to market over time.

Is £3.46 the floor, I think we will only know that when the Supreme court judgement comes in. Some funds have have been selling out as they don't want to gamble on the future Supreme court ruling.

The BBC has a article which mentions that the FCA tried to get the Supreme court to speed up a judgement, but don't suppose that is easy for the Supreme court which is probably booked up.

[apple53] 08/12/2024 22:26

Thanks Red. 1m share trade at 3.46 on 5th. I haven't worked out what % hit on its funds Unicorn will have taken (assuming they bought £6-10), presumably not immense and so they preferred the hit over later being criticised for holding car finance stocks through the crisis.
The good news is someone was on the other side of this block trade. Does the absence of an other RNS mean that it was sold to a number of different institutions? Does that make £3.46 the floor?
And btw does the implied hit taken by STB mean CBG would be bust on the same basis? Should you short a modest amount of Close Bros to hedge STB?