But a recovery is only possible if investors can be convinced that past problems have been resolved. Otherwise, there could be more bad news to come for shareholders. With this in mind, let’s see why this UK merchant banking group has fallen out of favour and examine whether its incredibly low earnings multiple means its stock could bounce back soon.

Under the spotlight

All of the group’s problems are connected with the industry-wide investigation by the Financial Conduct Authority (FCA) into the alleged misselling of car loans. Whenever there’s significant news (good or bad) to report on the issue, the group’s share price reacts accordingly.

For example, on 10 January 2024, the FCA publicly announced its review. Over the following five weeks, the group’s shares crashed 61%.

On 1 August 2025, the Supreme Court upheld the group’s appeal overturning previous judgements made in three cases brought by borrowers. In the words of the company: “[this] determined that motor dealers (acting as a credit broker) do not owe fiduciary duties to their customers.” Over the next seven days, its share price soared 30%.

At the moment, the FCA is consulting on an industry-wide redress scheme. However, Close Brothers says it “does not believe the current redress methodology proposed… appropriately reflects actual customer loss or achieves a proportionate outcome”.

Déjà vu

On Monday (16 March), the group’s shares tanked 13.9%.

This followed the publication of a report by Viceroy, an “independent investigative research group”, suggesting that Close Brothers is under-estimating the true cost of compensation. It claims the group’s “exhausted” its efforts to sustain its capital base, is selling off subsidiaries, and is suspending its dividend, giving it little financial firepower should the outcome be worse than expected.

Viceroy says the group will have to “at least” double its existing provision of £300m. Its research suggests a potential range of outcomes of £572m-£1.232bn. In extreme circumstances, this could lead to a breach of regulatory reserve requirements. Its base case (£999m) “indicates that equity-holders will be substantially wiped out in a restructure”.

This is serious stuff. But it’s only one opinion. The company responded by saying it “disagrees” and explained that its “provisioning approach” — which “follows a robust governance process” — is in accordance with international accounting standards.

Latest results

Yesterday (17 March), the group released its results for the six months ended 31 January.

Based on adjusted earnings over the past year, the stock’s trading on a multiple of just 6.5. Remarkably, the group’s market cap is approximately £1bn lower than its book (accounting) value. At the end of January, its tangible net asset value per share was 870p, compared to a share price at the time of 505p.

On paper at least, it looks like a bargain.

However, given all this uncertainty, it would be too risky for me to take a position. I shall revisit the investment case when things become a little clearer. In the meantime, I’m going to look at some other interesting opportunities.

The post Down 78% with a P/E of 6.5, is this a rare chance to buy a cheap UK share? appeared first on The Motley Fool UK.

In large part, this market outperformance stems from higher interest rates. With lending margins widening significantly, the bank’s earnings have surged, resulting in superior investor sentiment and analyst outlook. And yet, there’s another UK bank stock that’s doing even better.

Until recently, Close Brothers (LSE:CBG) has been a bit of a disaster. In fact, in 2024, the firm saw its market-cap shrink by over 70%. And yet, since January, the shares have begun recovering rapidly, delivering a 95% gain. That’s almost double what Lloyds has done, and 6.7 times more than the wider stock market.

What’s behind this impressive surge? And could this just be the tip of the iceberg?

Explosive recovery gains

As a quick reminder, Close Brothers is a specialist bank that offers lending, deposit-taking, and wealth management services. It primarily caters to small- and medium-sized businesses and, recently, it’s found itself in the media spotlight.

Like Lloyds, Close Brothers has been at the centre of the UK Motor Financing Scandal revolving around undisclosed commissions for car loans. The company was forced to set aside a massive chunk of capital to cover potential compensation claims, spooking investors, resulting in a multi-year decline.

However, in 2025, the Supreme Court overturned a previous ruling in this ongoing legal battle – a decision that was massively favourable to this business and eliminated a lot of legal uncertainty.

Close Brothers isn’t out of the woods yet. And it’s still put aside considerable capital provisions as the Financial Conduct Authority (FCA) explores a potential industry-wide redress scheme. But with the potential financial fallout now much smaller thanks to the Supreme Court, sentiment surrounding this bank’s improving.

Time to consider buying?

Beyond legal clarity, institutional analysts have also praised management for their disciplined approach to capital allocation. Strategic disposals have helped bolster the group’s financial health as well as deliver operational efficiencies. And subsequently, several experts have raised their share price targets.

With an average projection of 506p, that suggests more double-digit gains could be unlocked over the next 12 months.

Of course, forecasts are never set in stone. And even with a bullish stance, analysts have still highlighted important risks to consider. The FCA redress schemes remain a point of contention, especially if Close Brothers’ exposure exceeds its current capital provisions.

At the same time, being a bank that deals mostly with smaller businesses, it’s far more sensitive to the UK economic environment – something that’s lacking strength at the moment. Stubborn inflation and higher taxes have already hampered business growth, creating an indirect headwind for Close Brothers’ business.

Regardless, with more recovery potential seemingly on the horizon, contrarian investors could enjoy further recovery gains. That’s why I think a deeper investigation is warranted.

The post Meet the banking stock crushing the Lloyds share price in 2025! appeared first on The Motley Fool UK.

But fellow lender Close Brothers Group (LSE: CBG) was exposed to the risk of going bust. And the share price crunched down 11% when the London stock market opened this morning (30 September). But it did bounce back, and at the time of writing we’re looking at a 4% drop on the day.

It was full-year results time, and a reported operating loss of £122.4m did the damage. It led to a painful 99.8p loss per share from continuing operations, following a positive 56.2p a year previously.

A year of change

CEO Mike Morgan stressed the bank’s refocus, highlighting “the actions we have taken to strengthen our capital position and simplify the business“.

The company has sold its Close Brothers Asset Management, Winterflood, and Brewery Rentals businesses. The result, the boss said, means the bank has “delivered £25 million of annualised cost savings and will deliver at least c.£20 million of additional annualised savings per annum in each of the next three years“.

Looking at the two banks, one huge and one tiny, highlights some key contrasts. One of them suprised me, as I checked the latest share price charts. I knew Lloyds was up around 50% so far in 2025, and I guessed Close Brothers wouldn’t have come close. But no, it’s made double the gain, up 101% year to date.

Risk versus reward

Looking at the longer-term change shows a very different picture. Lloyds shares have trebled over the past five years, while Close Brothers investors are sitting on a 53% loss. So, what does this really tell me?

I’ve been drawn to smaller bank stocks in the past, and I’ve come close to investing in so-called challenger banks before. They can be nimbler, and can dive into opportunities faster than the big players. And they can take advantage of deals too small to make much difference for banks like Lloyds.

The big risk, of course, is that they don’t have anywhere near the financial muscle to handle major threats easily. While the car loan thing could have caused a lot more pain for Lloyds, it was never going to come close to bringing the bank down completely.

What next?

Looking forward from here, I’m actually liking what I see at Close Brothers. The company posted an adjusted operating profit of £144m (from continuing operations). And it ended the year with a CET1 capital ratio of 13.8%, or a pro-forma 14.3% after the Winterflood disposal.

The bank might have squeeked through a tight spot. But its liquidity seems healthy enough. And the CEO said: “I am confident we are on the right path and that we will return this business to double-digit returns.“

I want to wait until the details of the FCA’s car loan redress plans emerge. But if that’s not too costly, I’ll consider a modest investment in Close Brothers to go with my Lloyds holding.

The post Never mind the Lloyds price, this bank stock just fell 4% appeared first on The Motley Fool UK.

But while it’s led the FTSE 100 pack, two regional FTSE 250 players are actually ahead.

Close Brothers Group’s (LSE: CBG) jumped 17.73% this month, while Paragon Banking Group‘s (LSE: PAG) up 5.95% (as of 28 August).

That begs the question: do these smaller lenders offer the same long-term value as Lloyds? I decided to take a closer look.

Flying too close to the sun

Close Brothers has been one of the most remarkable performers of 2025, with its share price almost doubling year-to-date. The specialist financial services group provides lending, securities trading and investment management solutions across a range of sectors.

Much of the recent rally came after the Supreme Court overturned previous rulings on car loan sales practices. That decision lifted a cloud hanging over several banks – Lloyds included – and helped spark investor enthusiasm.

As a result of a one-off provision of £165m put aside, Close Brothers posted a loss in its latest results. However, it’s now unlikely that the full amount will be needed so this loss will likely adjust in the next earnings call.

Still, it remains vulnerable to economic downturns, regulatory changes and competitive pressures. While it does well in stable conditions, it could face headwinds in a weaker economic environment.

To be fair, the stock does look cheap on paper, trading on a forward price-to-earnings (P/E) ratio of 8.2 and a price-to-book (P/B) ratio of just 0.47. Yet some analysts believe the good news is already priced in. RBC Capital Markets recently downgraded the stock to Sector Perform, keeping its price target at 525p.

The risk, in my view, is that Close Brothers may struggle to justify the recent surge if profitability doesn’t follow.

A reliable income stock

Paragon Banking Group, on the other hand, offers a steadier story. Known for its focus on specialist mortgages, consumer loans, and buy-to-let lending, the bank has built a reputation as a dependable dividend payer. It currently yields 4.6%, backed by a 20-year history of payments and a payout ratio of around 40%.

Valuation looks undemanding too, with a forward P/E ratio of 8.6 and a P/B ratio of 1.2. Importantly, Paragon’s profitable – it boasts a 21.5% operating margin and a return on equity (ROE) of 14.7%. In its Q3 trading update, loan balances rose 4.8%, underlining steady business growth.

Broker sentiment remains cautious but constructive. On 26 August, Jefferies issued a Hold rating with a target of 1,015p, while the broader analyst consensus sits at around 1,000p – implying a potential 12% increase from today’s price.

My verdict

Despite outperforming Lloyds this month, Close Brothers has still shed 58% of its value over the past five years. But this year’s recovery has rewarded shareholders handsomely, so it’s starting to look like a promising stock that’s worth considering.

Paragon, in some ways, looks even more attractive. For income investors seeking a reliable and fairly valued opportunity, it seems like a stock worth considering. Lloyds may remain the UK banking heavyweight but, on balance, I think Paragon deserves a place on any watchlist.

The post Lloyds’ share price beat all FTSE 100 banks in August — but 2 FTSE 250 peers are still ahead appeared first on The Motley Fool UK.

Close Brothers Group (LSE: CBG) lost 8% by midday, and we see a 34% crash over the past 12 months. It looks like nerves are on edge ahead of the car-loan mis-selling case due to kick off at the Supreme Court on 1 April.

What’s it about?

In October 2024, the Court of Appeal ruled it illegal for lenders to pay commissions to car dealers without fully-informed consent from customers. And now, Close Brothers and MotoNovo Finance are challenging that.

What was happening was car dealers were arranging loans for customers and being paid a commission on the loans from the lenders, apparently without the borrowers being made clearly aware of it.

The Financial Conduct Authority (FCA) has been urging people who think they’re victims of mis-selling to make claims. Lenders were given until December to respond. But that could be up in the air now, depending on what happens next.

What might it cost?

We don’t know what the scale of any compensation might be like. But Alex Neill of Consumer Voice says that if the Supreme Court backs the Court of Appeal it “would be huge and would be on the scale of PPI, with compensation payments running into the tens of billions of pounds.”

Lloyds is one of the biggest lenders caught up in this. At full-year results time, the bank revealed it had set aside a further £700m to cover potential costs. That’s in addition to 2023’s £450m, taking the total to £1,150m. It’s a significant portion of the £4.5bn pre-tax profit reported for the year. And if might get bigger.

The pain could be proportionally more severe for Close Brothers. Reporting on its first half in March, the company said it expects full-year operating expenses to rise by £200m as a result, and made a £165m provision in the half. That’s a lot less than Lloyds in absolute terms, but this is a bank with a first-half operating income of just £390m. It meant a £103m operating loss before tax.

What should investors do?

There’s one main question for us. How much of the potential bad news do we think is already factored into the share price? At Lloyds, there’s a forecast price-to-earnings (P/E) ratio of 11 on the cards.

That’s the highest it’s been for a few years. And I think it might be too much if the financial pain turns out worse than feared. But we have to contrast it with a fall to under seven by 2027 if earnings growth foreacasts are accurate, which looks cheap.

At Close Brothers, a forecast loss makes such measures meaningless. And the tiny profit predicted for 2026 would put the P/E at 60, really not saying much at all.

We each have to decide whether or not to wait and hope. And I expect most people have already made up their minds. It certainly reminds us of the importance of diversification.

Lloyds remains a hold for me, though if I didn’t have any I’d consider buying. And I see Close Brothers as a recovery candidate worth considering too.

The post What’s happening to the Lloyds share price? appeared first on The Motley Fool UK.

My FTSE flop

I’ve just conducted a review of my family portfolio — which includes 27 individual shares — to find our winners and losers. While I’m delighted at the ‘jumpers’, I need to watch the ‘slumpers’.

We hold seven mega-cap US stocks (including four of the ‘Magnificent Seven’), six of which have done incredibly well. Our UK holdings include 15 FTSE 100 shares, plus five FTSE 250 stocks.

Among our five mid-sized company stocks, we have two big winners. These businesses are being taken over at large premiums to our entry prices. Hence, we need to decide where to invest this cash when it arrives. Two other shares are doing okay, but nothing fancy.

My FTSE 250 flop

Now for by far the worst share I have bought in the last 15 years. Winner of my wooden spoon for investment performance is financial firm Close Brothers Group (LSE: CBG). Founded 147 years ago in 1878, Close is a mid-tier player in merchant banking, business and consumer lending, wealth management, and securities trading. It first listed its shares in London in 1984.

The past five years have been brutal for Close shareholders. Close to its all-time high, the share price closed at 1,685p on 12 March 2021. Unfortunately, it’s been steeply downhill for this stock ever since. Currently, the share price stands at 320p, valuing this business at £488m — a shadow of its former self. Over five years, the stock has collapsed, plunging 77.8%. Over one year, the decline is 1.1%.

That said, things have been a lot worse for Close shareholders, including me. At their 52-week low on 13 November 2024, the shares crashed as low as 179.83p, before bouncing back to current levels.

What crashed Close?

We bought Close for its attractive dividend yield. At our buy price of 790.8p, this cash yield was 8.5% a year. Then it cancelled its dividend in a shock announcement on 15 February 2024.

Sadly, the stock fell into a sinkhole last year, driven down by Close’s involvement in a growing mis-selling scandal involving car loans. For many years, it allowed car dealers to charge customers higher rates of interest, without revealing these hidden charges to buyers.

The Financial Conduct Authority is conducting a wide-ranging regulatory review of this issue, while several important legal cases around this mis-selling are going through the courts. Estimates for potential consumer compensation run into tens of billions of pounds.

I bought Close thinking it was a classic ‘fallen angel’ stock, but it turned out to be a little devil. My biggest regret is that I didn’t sell out as soon as this reputational issue emerged in 2023. To date, we have lost 59.5% of our investment, leaving less than two-fifths remaining.

Do I sell our holding in this floundering FTSE 250 business? To be honest, I don’t know, as I’m equally pessimistic and optimistic about this company’s future. If key court cases go Close’s way, then total compensation could be greatly reduced. Close is also selling its wealth-management arm for up to £200m. Hence, we’ve decided to sit tight and await developments!

The post This failing FTSE 250 share has given me a rough ride! appeared first on The Motley Fool UK.

The most prominent issue is related to the ongoing FCA investigation into motor financing loans being issued with undisclosed commissions. In October, its fate seemed to have been sealed when a court ruling deemed it illegal for banks to pay a commission to car dealers without obtaining a customer’s informed consent.

This means that all the lending institutions involved could now be on the hook for billions of pounds worth of borrower compensation. In fact, analysts at Moody’s have estimated total redress costs could reach as high as £30bn.

However, there may still be some hope for banks like Close Brothers. And if everything goes in their favour, the stock could be set to enjoy a skyrocketing recovery in just a couple of months.

A second chance at court

Earlier this month, the UK Supreme Court granted auto lenders permission to challenge the earlier October ruling. This gives Close Brothers a second chance to present its case and potentially avoid an estimated £640m penalty based on current analyst projections.

The case is due to be heard between January and April. And Close Brothers won’t be the only bank attending, with other financial institutions such as Lloyds and Santander. So what are the odds of a favourable outcome?

At this stage, it’s difficult to say due to the complexity of the situation. But it’s worth pointing out that historically, challenges at the Supreme Court typically only have around a 30% success rate. Needless to say, while the odds aren’t impossible, they’re not exactly in Close Brothers’ favour.

Worst-case scenario

Let’s assume the Supreme Court upholds the previous ruling. What does that mean for Close Brothers shareholders? The actual cost of compensation to customers is currently unknown. After all, the FCA investigation’s still ongoing. But management’s already putting aside £400m to cover the potentially incoming expense.

In order to raise this capital, the firm’s selling its asset management division for £200m to a private equity group. The deal won’t close until early 2025, but that’s before any expected penalties could arrive, giving some ideal timing.

Sadly, this transaction also means operating profits moving forward will be slightly lower due to the discontinued operations. Yet what I find more concerning is that CEO Adrian Sainsbury’s currently on a medical leave of absence during this challenging time.

Overall, Close Brothers is in quite a tight spot. It goes without saying that there’s enormous risk attached to an investment right now. Personally, it’s too high for my tastes. And while its price-to-earnings ratio of just 3.5 does look exceedingly cheap, it’s not a stock I’m tempted to buy right now.

The post Down 70% with a P/E of 3.5! Is this FTSE 250 stock on the verge of a MASSIVE comeback? appeared first on The Motley Fool UK.

Both companies have found themselves in hot water this year. Questions from investors are now circulating regarding both firm’s financial health, as well as uncertainty surrounding looming external threats. With that in mind, it’s no surprise both stocks have seen around two-thirds of their market-caps wiped out. What’s going on?

Financial audits are never a good sign

It doesn’t take more than a quick glance at John Wood’s stock price chart to notice that something’s very wrong. Since the start of 2024, the FTSE 250 stock has collapsed by over 60%, suffering from two double-digit crashes in August and November.

All of this comes after failed multiple takeover bids in the later stages of due diligence and negotiation. Then, in its subsequent results, an impairment charge of $815m and $140m in project exit expenses were announced, along with an independent audit of its financials.

To be fair, an impairment charge doesn’t affect cash flow. And the firm’s consulting division does appear to be performing admirably, delivering better margins. As such, management’s reiterated its full-year guidance. However, with more questions than answers, John Wood Group isn’t a business I’m rushing to add to my portfolio today, even if the valuation looks cheap.

Regulatory probes are bad for business

Close Brothers is another stock that’s taken a massive hit this year, falling by more than 70% since January. In fact, it’s fallen so much that its price-to-earnings ratio sits at just 3.5 today. By itself, an earnings multiple this low suggests a screaming buying opportunity. But after closer inspection, this seems to be nothing more than a value trap, in my opinion.

The company’s found itself at the centre of the ongoing FCA investigation into motor finance loans and undisclosed commissions. The regulatory probe’s still ongoing, but if it finds wrongdoing, Close Brothers could be facing a fine of up to £640m, according to estimates by analysts at RBC Capital Markets. That’s almost six times what the firm made in net profit in its 2024 fiscal year ending in July.

As horrendous as this sounds, it’s important to note that nothing’s guaranteed. Even if Close Brothers is found liable, the fine could be considerably less than currently expected. Given how low the stock price is, that could spark a welcome rally in the short term.

However, just like with John Wood Group, I’m not interested in investing in a business that’s shrouded with uncertainty, especially when regulators are involved.

The post 2 FTSE 250 shares I won’t touch with a bargepole in 2025 appeared first on The Motley Fool UK.

The key problem

The Close Brothers (LSE:CBG) share price is down 72% over the past year. It currently has a price-to-earnings ratio of just 2.84. Usually, I benchmark a stock valuation against a ratio of 10. So a figure below 3 is certainly why I’d refer to this as cheap.

However, I never use that ratio just in isolation when thinking about investment choices. That’s well and good, given that the fundamental situation with the business looks very concerning right now.

The warning flag was raised for me back in October 2023, when a UK Court of Appeal ruled against Close Brothers and other lenders regarding historical motor finance deals. In short, Close Brothers didn’t inform customers that the motor dealers were getting commission for the finance deals that were being done.

The FCA has launched an investigation, which is still ongoing. Yet the size of potential fines is large, with some suggesting the sector could have to pay out £16bn in compensation to customers.

I’m staying well away

The management team at Close Brothers are concerned about impact the FCA decision could have on the business. In the latest trading update it spoke of “the significant uncertainty resulting from the FCA’s review.”

In September, it agreed to sell its wealth management unit for £200m, which will help to boost finances ahead of any potential fine. On top of cutting the dividend, all of these measures are built around trying to build up enough of a buffer.

Yet according to analysts at RBC Capital Markets, the fine for Close Brothers could be as large as £640m. To put this into perspective, the 2024 annual report showed a profit after tax of £100.4m.

I’m not saying a fine of this size would send the company bust. Based on the assets on the balance sheet, it can survive. But it might have a multi-year impact on the firm.

Tempering my mood

Perhaps I’m being too pessimistic. After all, it could turn out that this was all a bad dream and the FCA just decides to give the management team a strongly worded letter and everything just settles down. In this case, I’d expect the share price to leap higher on investor optimism.

Or it could be that there is a fine, but it’s smaller than investors are expecting. This too could see a relief rally in the stock, and anyone buying the shares today might benefit in the short term!

However, I’m a long-term investor and struggle to see Close Brothers recovering from this whole situation for several years. Other investors might feel differently, but without the profitable asset management business, I think it fundamentally needs to reshape the entire business model if it’s ever to be a company that I’d consider investing in.

The post Why I believe this cheap stock is fundamentally doomed appeared first on The Motley Fool UK.

In January, the Financial Conduct Authority (FCA) announced an investigation into the historical mis-selling of car finance. It’s alleged that discretionary commission arrangements were in place that encouraged motor dealers to sell finance at higher interest rates.

In October, the Court of Appeal ruled that the consent of customers should’ve been obtained before a broker received any type of commission payment. This has prompted fears that the FCA way widen the scope of its investigation.

Close Brothers is appealing the Court’s judgement.

What does this mean?

RBC estimates that the cost to the company could be compensation and fines of up to £640m.

Some have pointed out that this is over twice the group’s current (22 November) market cap of £309m. But this comparison is misleading. The company’s balance sheet at 31 March 2024 shows net assets of £1.84bn, so it should be able to survive even if the RBC prediction proves to be accurate.

However, to help shore up its finances, the company has sold its asset management business for £200m. The up-front cash payment of £172m provides a useful buffer should events take a turn for the worse.

And once this saga is resolved, it should be business as usual — albeit with much improved paperwork and increased transparency regarding commission payments.

If I invested now — and its share price were then to climb towards its all-time (March) high of £16.85 — I’d see a seven-fold increase in the value of my stake.

Sounds unlikely?

Well that’s by how much the Rolls-Royce share price has increased since October 2020.

The engineering technology group had to launch a £2bn rights issue, raise £1bn from a bond, and take on £2bn of new loans to survive the impact of the pandemic. Since then its share price has taken off and loyal shareholders have been rewarded with handsome paper profits.

Decision time

But I don’t want to invest at the moment.

Don’t get me wrong, I think the company will come through this crisis. I take comfort from that fact that its been around since 1878. Just think of the historical challenges — including two world wars and many financial meltdowns — that the group has survived.

And with all this bad news around, it’s easy to forget that the group’s profitable.

I missed out on the post-Covid Rolls-Royce share price rally and I could be making a similar mistake with Close Brothers.

However, I’m concerned that the FCA investigation has yet to run its course.

And the company could lose its legal appeal.

This makes me wonder whether there could be more bad news to come. Moody’s, the ratings agency, reckons the outcome could cost the motor finance industry up to £30bn. Given the uncertainty and the large sums involved, I’m going to sit on the sidelines and watch with interest how this drama unfolds.

The post Could this FTSE 250 stock be the next Rolls-Royce? appeared first on The Motley Fool UK.