The automotive finance sector witnessed a significant shift this week as Secure Trust Bank announced the sale of its vehicle financing division to LCM Partners for £459 million ($580 million), marking one of the largest divestments in the UK banking sector this year.
The transaction, finalized Thursday after months of speculation, represents a strategic pivot for Secure Trust amid growing regulatory pressures on the consumer lending market. According to sources familiar with the deal, the sale price reflects approximately 1.2 times the division’s book value – a figure analysts at Barclays described as “surprisingly robust given current market conditions.”
For Secure Trust, a mid-sized British lender with roots dating back to 1952, the decision to sell comes during a period of intense scrutiny for financial providers who previously sold motor finance through commission arrangements that the Financial Conduct Authority (FCA) has deemed potentially harmful to consumers.
“This divestment allows us to refocus our resources while significantly strengthening our capital position,” explained Secure Trust CEO Jonathan Bloomer during yesterday’s investor call. “The potential liability from historical motor finance practices created uncertainty that was weighing heavily on our share price.”
Indeed, the bank’s shares jumped 14% following the announcement, their largest single-day gain since 2016. This positive market reaction underscores the growing concerns investors have harbored about potential compensation payouts similar to the payment protection insurance (PPI) scandal that cost British banks more than £50 billion.
The FCA’s investigation into discretionary commission arrangements (DCAs) has cast a shadow over motor finance providers. These arrangements, common between 2007 and 2021, allowed dealers and brokers to adjust interest rates charged to customers, potentially creating incentives to sell higher-rate products.
Michael Saunders, chief economist at Oxford Economics, told me that the regulatory environment has fundamentally shifted: “Financial institutions are increasingly divesting businesses where conduct risks from past practices might trigger significant liabilities. It’s reminiscent of the early days of the PPI scandal, but with lessons learned about acting decisively.”
For LCM Partners, a specialist credit investment firm managing over €30 billion in assets, the acquisition represents a significant expansion in consumer finance. Paul Burdell, LCM’s CEO, described the purchase as “a rare opportunity to acquire a high-quality portfolio with established infrastructure at an attractive valuation.”
The London-based investment firm specializes in purchasing and managing credit portfolios, often focusing on segments where traditional banks are retreating. According to data from Dealogic, this acquisition makes LCM the third-largest buyer of financial services assets in Europe this year by transaction value.
What makes this deal particularly noteworthy is the timing. It comes just weeks after the Competition and Markets Authority (CMA) released preliminary findings from its investigation into the UK motor finance market, highlighting “significant concerns” about historical sales practices.
Sarah Thompson, senior banking analyst at Morgan Stanley, explained the broader significance: “We’re seeing a fundamental restructuring of the UK consumer finance landscape. Regulatory interventions are creating both risks and opportunities, with specialized investors stepping in as traditional banks reassess their exposure.”
Financial data from Bloomberg Intelligence indicates that Secure Trust’s vehicle financing division generated approximately £87 million in revenue last year, with a loan book exceeding £2 billion. The division has consistently delivered returns on equity above 15% – performance metrics that would typically make it an asset worth retaining.
However, the looming specter of potential customer redress has altered the risk-reward calculation. According to estimates from the Financial Times, the UK banking sector could face compensation bills reaching £16 billion if the FCA mandates widespread refunds for customers sold finance through discretionary commission arrangements.
For everyday consumers with outstanding car loans, the change in ownership should have minimal immediate impact. LCM has committed to honoring all existing customer agreements and maintaining current service standards. The investment firm has also pledged to retain the majority of the division’s 420 employees, though industry analysts expect some consolidation of back-office functions.
“The structural dynamics of car financing in Britain are changing,” noted James Baxter, director of automotive research at Deloitte. “This transaction signals a shift away from bank-led financing toward more specialized operators who can navigate an increasingly complex regulatory landscape.”
The sale also highlights a broader trend of market concentration within financial services, as regulatory costs and capital requirements drive consolidation. Data from PwC shows that the number of authorized car finance providers in the UK has declined by nearly 20% since 2018.
For Secure Trust, the proceeds will significantly strengthen its capital position. The bank announced plans to return approximately £200 million to shareholders through a special dividend and share buyback program, with the remainder allocated to organic growth opportunities in its remaining business lines.
The implications extend beyond a single transaction. As Thomson Reuters data reveals, at least three other UK financial institutions are considering similar divestments of their motor finance operations amid the regulatory uncertainty. This suggests we may be witnessing the beginning of a broader restructuring within the sector.
For consumers considering car financing options in the coming months, this changing landscape could ultimately lead to more transparent pricing models but potentially fewer providers to choose from. The days of dealer discretion over finance rates appear numbered, regardless of who owns the underlying loans.
