Secure Trust Bank October 2025 update
After a turbulent year, much of the uncertainty has cleared and the current valuation remains highly attractive.
It's been around a year since my last update on Secure Trust Bank (STB) - posted shortly after the shock ruling by the Court of Appeal sent the share price into a tail spin.
The shares found their floor at £3.31 and remained below £4.00 until the end of January, when news of Government intervention in the case raised the share price to around £4.50. This was followed by another upward move in March after STB released its full-year results. These results included a statement highlighting the company's relatively minimal exposure to compensation claims, due to discretionary commission arrangements only accounting for about 4% of historical motor commissions paid. A fairly paltry provision of £6.4m was also made to cover any redress payments required. This was in line with my expectations outlined in Nov 2024:
I've run some numbers on the potential impact of the commission compensation claims, were they to be restricted to the discretionary commission arrangements used for a small portion of loans issued between 2009-2017.
A fairly conservative base case would be low-to-mid single digit millions in compensation, with a similar amount in associated administrative expenses, making it pretty inconsequential. Of course, were it to be extended to include all vehicle finance commission, the cost would be an order of magnitude greater.
The share price continued to climb steadily over the succeeding months, reaching £10.00 right before the Supreme Court gave their ruling, and then £12.00 when the ruling proved to be largely favourable for lenders.
Unfortunately, this wasn't the end of the story: on 6 Oct, the FCA published a consultation paper on its proposed redress scheme which appears to go beyond the scope of the Supreme Court ruling. As a result, lenders - including STB - have been forced to make additional provisions for redress payments and associated administrative expenses. Before we address this however, there are a couple of other important events to discuss in our timeline.