FNB-owner’s UK headache

Africa’s biggest lender by market value says it might have to rethink its business in the UK depending on the outcome of a landmark case it has before the Supreme Court over historic practices in its motor finance business. 

FirstRand, one of the firms at the centre of lawsuits before the UK’s top court, is appealing a lower tribunal’s decision that deemed it unlawful for lenders to pay car dealers a commission to sell their loans to motorists without their consent.

The outcome of the Supreme Court ruling could determine the future of the company’s business in the UK, which makes up 10% of FirstRand’s companywide earnings and represents about 20% of its balance sheet, according to FirstRand’s CEO Mary Vilakazi.

The outcome will likely impact the entire lending business, which also includes property and business finance, she said.

“It would have an implication of how we think about lending and whether we can actually still get appropriate returns,” Vilakazi said in an interview with Bloomberg Television.

“If sanity prevails, I think we’ll work through these things and get to a better landing. But if not, I suppose questions have to be asked about our ability to generate returns in the long run.”

The South African company was dragged into the case through its MotoNovo unit in the UK. FirstRand’s appeal will also be heard at the same time as a similar case brought by Close Brothers, a London-based specialist financial services firm. 

The Supreme Court refused to let the Treasury intervene in the court case, dealing a blow to Chancellor Rachel Reeves who had sought to argue that the suit was hindering Britain’s regulatory environment.

Vilakazi said that Reeves sought to get involved at all, which was a good sign for lenders.

“I think if the government was not also listening and really mindful of what can happen, then that would be a lot more concerning,” she said.

“Our approach has been to focus, get through the cases, see what the outcomes are and, like anything else, we evaluate when we’ve got the right information in front of us.”

The court case has captured the attention of investors around the world, and lenders across the UK are bracing to pay out potentially billions in claims should judges rule against the two companies.

Analysts at Bank of America Corp. recently estimated that the industry may face as much as £38 billion in costs tied to the saga.

“It is encouraging for us that the Supreme Court has granted us leave to appeal on all six grounds, and we really need a bit more clarity on how the courts arrived at them,” Vilakazi said. “So the scope is now different, but there’s a fair amount of uncertainty.” 

Lloyds Banking, the UK’s biggest provider of car finance, has already set aside £1.15 billion for possible compensation and other costs tied to the Financial Conduct Authority’s ongoing probe into whether auto loan borrowers were overcharged.

The Supreme Court is due to hear the FirstRand and Close Brother cases on the matter in April, while the watchdog is set to announce its next steps in May.

Close Brothers said last month that it plans to set aside a first-half provision of £165 million for the matter. FirstRand has, for now, opted to keep its provision at £127.4 million, the company said Thursday.