A motor finance consumer redress scheme imposed by regulatory authorities in the UK will see FirstRand working to exit its Aldermore business in that country. In South Africa FirstRand's motor finance business unit trades under the WesBank brand.
Image: IOL
Banking and financial services group FirstRand’s share price shot up 7.14% after it announced plans to exit from its UK bank Aldermore.
The share price traded at R93.21 on the JSE on Wednesday afternoon, indicating a favourable investor response to the group’s plans for Aldermore announced late Tuesday. A year previously, FirstRand was trading at R66.24.
It has cut earnings forecasts and blamed a costly and "deeply flawed" British motor finance redress scheme for the plans to exist Aldermore. Provisions for miss-sold UK motor loans were raised by a further pre-tax accounting amount of R11.9 billion, bringing the total provision to R17.7bn.
FirstRand’s pre-motor provision normalised earnings guidance remained intact. However, the group now expects full-year normalised earnings post the UK motor provision to contract between 4% and 9%, and the return on equity to be at or just below the bottom end of its previously stated range, the group said in a statement.
“Whilst the group believes Aldermore Bank is a resilient and sustainable business serving an important need in the UK market…the UK as a consumer finance jurisdiction will not deliver the returns that the group requires,” the group said in a statement.
“The group has done everything in its power to protect shareholders from a redress scheme that it considers deeply flawed in its construction and which goes against two of the FCA's original guiding principles; namely principle 2: fairness… and principle 7: market integrity.”
“The group will work with the Aldermore board and respective regulators to facilitate an orderly ownership transition,” FirstRand said in a statement.
Following months of wrangling with the UK financial industry, the UK's Financial Conduct Authority (FCA) last month told the motor finance sector to compensate UK motorists for unfair vehicle loans by around £9.1bn in one of Britain's costliest financial mis-selling scandals. The FCA accused the industry of inadequately disclosing commissions and contractual ties between lenders and car dealerships that it said encouraged brokers to increase vehicle loan rates between 2007 and 2024.
FirstRand had bought Aldermore in 2017.
BUSINESS REPORT