Santander has postponed the full publication of its UK earnings as it assesses the financial impact of a landmark court ruling that could expose motor finance providers to significant compensation claims.
The Spanish bank said it needed additional time to evaluate the decision, which found that lenders must obtain customers’ fully informed consent before paying brokers a commission.
Analysts believe the ruling could pave the way for the Financial Conduct Authority (FCA) to introduce a redress scheme as part of its ongoing review into now-banned discretionary commission arrangements.
RBC Capital Markets has estimated a worst-case scenario in which Santander UK faces a £1.8bn bill, up from a previous estimate of £1.5bn. However, Santander has pushed back on analysts’ calculations, stating that it is “not possible at this time to reliably predict the financial impact” and does not expect it to materially affect its group financial targets.
The ruling has already weighed on banking stocks, hitting Close Brothers the hardest and dragging down Lloyds Banking Group, which owns leading motor finance provider Black Horse. Santander noted that the judgement set a “higher bar” for commission disclosure and confirmed that defendants in the test case plan to appeal.
Alongside the legal uncertainty, Santander UK reported a sharp decline in quarterly profit, with earnings falling 18.5% year-on-year to €346m (£288m). The drop follows a 23% decline in the previous quarter as the lender faces stiff mortgage competition and falling interest rates.
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Santander also confirmed it had reduced its UK workforce by 468 staff this year through redundancies and attrition. While the lender maintained that mortgage activity has picked up, it has kept rates higher than some competitors, contributing to a 10% revenue decline.
Despite UK weakness, Santander reported a group-wide profit of €3.25bn (£2.7bn) for the third quarter, up 12% year-on-year, aided by lower costs and reduced loan loss provisions.
