FirstRand looks set to exit its UK business, Aldermore, after potential penalties of over R17 billion were announced in an investigation into unfair motor finance practices.
Several UK motor finance companies have been held liable for failing to inform customers about commission or cover agreements, with billions of pounds in compensation set to be paid.
One company found liable for redress is Aldermore’s subsidiary, MotoNovo. FirstRand is South Africa’s most valuable bank, with a market cap of R486 billion, and is the owner of RMB, FNB and WesBank.
FirstRand said it had assessed the UK’s Financial Conduct Authority (FCA) statement regarding its proposed redress scheme.
While FirstRand said that the FCA made some changes to the scheme following concerns raised by lenders, any mitigation arising from these changes has been more than offset by other amendments.
“These amendments are problematic in that they result in a financial impact above the group’s expectations,” it said.
“Therefore, FirstRand remains firmly of the view that for the group, the final redress scheme proposed
by the FCA is disproportionate and unfair.”
The new redress includes a hybrid redress calculation, which is not loss-based and does not consider costs for lenders, and has a higher interest rate than initially proposed.
With this in mind, the group had to raise a further pre-tax accounting provision of £510 million (c R11.9 billion).
This brought the total accounting provision raised to £750 million (c R17.7 billion).
A far larger portion than expected of the £510 million raised is for the business written post the FCA’s regulatory changes in 2021.
This total provision compares to just £275 million of profits the group extracted from motor finance activities over a decade of motor lending in the UK.
The group said it is extremely disappointed with this outcome and that it tried to protect shareholders from a redress scheme it considers deeply flawed in its construction.
Say goodbye to the UK
The group told UK regulators that, should the redress scheme result in the level of provisioning now in place, it would be forced to reconsider motor finance lending in the UK.
Given that MotoNovo meets the requirements of the redress scheme, the business will require further recapitalisation from FirstRand’s available resources in its UK operations.
“This may mean financial resources available for allocation to motor finance in the UK will be severely constrained, resulting in capital not being available to fund growth in the MotoNovo business.”
Although this will have a negative impact on FirstRand’s excess capital position, the capital positions of FirstRand Limited, FirstRand Bank Limited and Aldermore Group are above the targeted capital ratios.
Although the group believes that Aldermore Bank is a sustainable business with a strong management team, FirstRand does not believe that it delivers the returns the group requires.
Thus, the business case for FirstRand to own and operate a UK consumer finance entity is not within the group’s risk appetite.
This is particularly the case given its disciplined financial resource allocation principles and the legal and
regulatory look-back risk.
“Cognisant of protecting shareholder value and ensuring Aldermore’s future success, the group will work with the Aldermore board and respective regulators to facilitate an orderly ownership transition.”
FirstRand said it would still be able to pay a dividend calculated on earnings before tax, even with the provision reaching its worst-case scenario.
The group will release its audited financial results for the full year to 30 June 2026 on Thursday, 10
September 2026.
