By Elena Vardon

Santander UK is setting aside 295 million pounds ($374.1 million) to cover the potential costs from a court ruling on the disclosure of dealer commissions on motor-finance transactions.

The Spanish bank's U.K. branch said the charge includes estimates for operational and legal costs and potential awards. The update came alongside its third-quarter results, whose publication had been delayed to allow time to quantify the potential financial hit of a court decision published late October linked to the disclosure of commissions on car loans.

The financial hit could be materially higher or lower than the figure given the significant uncertainties around the specifics of any remediation action, it said Wednesday.

Santander UK--which contributed just under 9% of the group's total revenue in the quarter--is one of the main providers of motor finance in the country but is less exposed to the ruling and regulator review into the sector than peers Lloyds Banking Group and Close Brothers.

Analysts at JP Morgan have forecast a hit of up to 1 billion pounds from motor-finance issues for Santander UK while RBC Capital Markets have estimated an impact as high as 1.8 billion pounds in the worst-case scenario.

Last month, the Court of Appeal ruled that it was unlawful for car dealers to get a commission from motor-finance lenders without the customer's informed consent. This widens the potential scope of a continuing investigation in the sector from the Financial Conduct Authority, who has said that the ruling is likely to increase the volume of complaints motor-finance firms receive.

In January, the regulator launched a review of historical motor-finance discretionary commission arrangements before the practice was banned in 2021 to determine whether companies were guilty of overcharging customers for car loans. The publication of the probe was delayed in September until May as it was taking longer than expected to gather the necessary data for the review.

Santander UK said that the provision offset an increase in income from active price management and the benefits of an improving economic environment in the three months ended Sept. 30. At Santander's results on Oct. 29, Finance Chief Jose Garcia Cantera told analysts that the bank was confident that the impact from the motor finance issues won't be material for the group.

Write to Elena Vardon at elena.vardon@wsj.com

(END) Dow Jones Newswires

November 20, 2024 03:45 ET (08:45 GMT)

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