Secure Trust Bank issues profit warning after motor finance review

The fallout from concerns over the car loans sector has led Secure Trust Bank to warn shareholders that the company’s annual profits are likely to be materially below market expectations.
In an unexpected trading update, the London-listed company said it expected pre-tax profits for the full-year to fall below market expectations by between £10 million and £15 million. This was due to activities to recover value from excess levels of defaulted loans within its vehicle finance division taking longer than thought.
This follows a pause in collections following the Financial Conduct Authority’s launch of an inquiry into motor finance earlier this year, which led to a higher volume of vehicle finance loans reaching default status, the company said.
The FCA’s wide-ranging review is looking at deals struck between April 2007 and January 2021, when it banned discretionary commission arrangements on motor finance, and fuelled speculation the watchdog will force lenders to pay billions of pounds in compensation to consumers.
However, the online challenger bank said that it had now restored collections activity to normal levels with earlier arrears in vehicle finance falling to their lowest level since 2021.
David McCreadie, chief executive, said: “We are disappointed that it will take longer than expected to recover value from the excess level of defaulted vehicle finance balances, and the recent Court of Appeal decisions have added additional uncertainty on the benefits to be realised in 2024.”
A judgment by the court last month set a much higher bar for the disclosure of commission arrangements between credit brokers and lenders than had been required by existing regulations. Lenders were found liable for brokers’ lack of transparency.
McCreadie added that “notwithstanding the near-term impacts of the excess defaults in vehicle finance,” the group had continued to grow total net lending and optimise its cost base.
Secure Trust said in the three months to the end of September its net loan book grew 7.1 per cent year-on-year to £3.4 billion as deposits rose to £3.14 billion.
The Solihull-based business was founded in 1952 and is a provider of car loans, retail finance, asset-based lending such as invoice finance, and loans to property developers. It has 897 employees. Last year it made a pre-tax profit of £42.6 million, up from £39 million in 2022.
The warning sent the shares, which were offered at 720p each when the company listed in 2011, down 92p, or 16.2 per cent, to close at a record low of 474p.