When looking for cheap UK shares, some of the best bargains can often be found at the bottom of the performance league tables. Indeed, only six FTSE 250 stocks have performed worse than Close Brothers Group (LSE:CBG) over the past five years. Since March 2021, its shares have crashed 78%.

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.