Santander UK sets aside £295m for motor finance payout
Santander UK has set aside £295m in its quarterly results to pay out to motor finance customers following a landmark court ruling on the topic last month.
The bank had previously delayed its third-quarter results thanks to the high court ruling, which it said had left it unable to calculate the potential cost of the decision.
The ruling sided with consumers and ruled it unlawful for car dealers to get a commission from lenders “without obtaining the customer’s fully informed consent to the payment”.
The money set aside to cover the costs of the ruling took a significant chunk out of Santander’s pre-tax profits over the quarter, falling to £143m from £413m in the previous three months.
Santander said the £295m motor finance provision “includes estimates for 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 bank added added.
Following the delay of its results, RBC modelled a worse-case scenario for Santander UK that would see it foot a £1.8bn bill, including compensation, interest and administration costs.
That compares to a previous upper estimate of £1.5bn. RBC’s base case for Santander would see the bank take a £1.1bn hit from the investigation.
Santander’s chief financial officer José García Cantera told Bloomberg shortly after last month’s ruling that the bank expected the motor finance decision to hit profits by “significantly lower” than 600m euros (£500m).
In the rest of Santander’s third-quarter results, it stated that its CET1 capital ratio had increased to 15.4 per cent despite a 19 basis point impact from the motor finance ruling, with the bank saying: “We remain well capitalised with significant buffers over regulatory requirements.”