LONDON – The UK arm of Spain’s Banco Santander (NYSE: SAN) has set aside 295 million pounds ($375 million) to cover possible costs related to an industry-wide probe into motor finance commissions, it said on Wednesday.
Last week, the Financial Conduct Authority said it would press the Supreme Court to expedite a decision to permit lenders to appeal a crucial judgment that may pave the way for Britain’s costliest consumer banking scandal since the faulty sales of payment protection insurance.
In October, the Court of Appeal ruled it was unlawful for car dealers to receive a commission from banks providing motor finance without obtaining the customer’s informed consent.
Santander UK said the provision covered operational and legal costs and potential awards, based on various scenarios using a range of assumptions.
“There are currently significant uncertainties as to the nature, extent, and timing of any remediation action if required and the ultimate financial impact could be materially higher or lower than the amount provided,” the lender said.
Santander’s Madrid-listed stock was trading 0.8% higher at 0801 GMT, compared with a 0.6% rise in the STOXX Banks index..
Total industry costs for motor finance compensation could reach 30 billion pounds, ratings agency Moody’s said on Tuesday. Analysts earlier said the matter could cost the industry up to 16 billion pounds.
In an interview with Bloomberg TV last month, Santander’s group Chief Financial Officer Jose Garcia Cantera estimated the financial impact on his bank to be less than 600 million euros ($635 million).
Lloyds Banking Group (NYSE: LYG) has also set aside 450 million pounds to cover its potential costs.
Santander UK said its CET1 capital ratio, a key measure of financial strength, increased in the third quarter to 15.4% notwithstanding the 19 basis point hit from the provision. It remains well capitalized with significant buffers over regulatory requirements, it added.
But the provision knocked Santander UK’s third-quarter pretax profit to 143 million pounds from 413 million pounds in the previous quarter. It booked a net interest margin of 2.17%, up 8 bps quarter-on-quarter.
Between January and September, the bank’s pretax profit dropped to 947 million pounds from 1.73 billion pounds, while net interest income was down 10% year-on-year, largely due to higher customer deposit costs.
($1 = 0.7869 pounds)
($1 = 0.9456 euros)
