FirstRand Group, Africa’s largest listed financial services institution, is putting UK challenger bank Aldermore up for sale after rising costs from a car finance mis‑selling compensation scheme.

In an update to shareholders on 7 April, FirstRand called the redress scheme “disproportionate and unfair”.

The £9.1 billion scheme run by the UK Financial Conduct Authority (FCA) seeks to compensate people who were mis‑sold car loans over the past two decades.

While the FCA has altered its requirements for repayment, reducing banks’ costs by more than £2 billion overall, FirstRand said it estimates the costs incurred by Aldermore under the scheme will rise to around £750 million. FirstRand added that Aldermore only made £275 million in profits from motor activities over more than a decade of motor lending.

The group said that it had “consistently shared” with UK regulators its concerns about the scheme and warned them it would be “forced to consider” whether it could continue to participate in motor financing should it go ahead in its current form.

FirstRand has now gone beyond consideration, and beyond motor finance, announcing its intention to sell Aldermore altogether. It said that it no longer believes consumer finance in the UK can “deliver the returns the group requires”, and that consequently ownership of Aldermore is “not within the group’s risk appetite”.

FirstRand Group bought Aldermore for £1.1 billion in 2017, and says it will work with the bank’s board and the relevant regulators to “facilitate an orderly ownership transaction” when the sale goes ahead.

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