Santander considering selling UK car finance business

Santander is looking to hive off its UK car finance arm as the Spain-owned bank starts to ready its UK business for sale, according to recent press reports. The move follows a £295 million provision in Santander UK’s most recent accounts to cover potential compensation costs arising from the current legal cases concerning motor finance mis-selling cases.

At the beginning of the year parent company Banco Santander indicated it was contemplating withdrawing from the UK market, citing regulatory concerns and the need to cut its costs.

According to Bloomberg, the lender is now considering moving the Santander Consumer UK (SCUK) division, which includes its motor finance offer, out of the main business, for which it would require regulatory approval.

Analysts have suggested that, by doing so, the bank would make its UK operation more attractive to potential buyers, given the unknown size of any potential compensation bill hanging over SCUK as a result of car finance mis-selling claims, which some estimates have put at £1.9 billion.

Benjamin Toms, of RBC Capital Markets, told the Daily Telegraph: “Given the ongoing litigation in the motor finance space, removing this product from the equation, will likely help with the marketability of the Santander UK asset.”

DCA uncertainty

In its 2024 annual report Santander UK said it has received a number of county court claims and complaints in respect of its historical use of discretionary commission arrangements (DCAs) prior to the 2021 rule changes.

As well as awaiting the outcome of the Supreme Court appeal on last October’s Court of Appeal ruling which opened the gates to claims around any sort of undisclosed commission payment, the bank said it is also waiting on a decision in the Competition Appeal Tribunal, which alleges that SCUK’s historical DCAs in respect of used car financing operated in breach of the Competition Act 1998. This is currently paused until the end of July 2025 pending the outcome of the FCA’s review of DCA issues.

Santander UK’s provision of £295m for any redress scheme includes estimates for operational and legal costs and potential awards, based on various scenarios using a range of assumptions, including the outcomes of the appeals.

Its annual report states: “There continue to be significant uncertainties as to the extent of any misconduct, if any, as well as the perimeter of commission models, and the nature, extent and timing of any remediation action if required. As such, the ultimate financial impact could be materially higher or lower than the amount provided, and it is not practicable to quantify the extent of any remaining contingent liability.”

The bank’s calculations indicate that a 5% increase in the claim rate, for example, could result in an extra £47 million of compensation falling due.

Gary Greenwood, of Shore Capital, said: “It’s difficult to find buyers when you’ve got an unquantifiable liability. It’s unlikely that a buyer would take on that sort of risk.”

Santander UK has not made a comment on possible developments.