When I see reputable companies whose share prices have fallen sharply, I often consider buying them for my Stocks and Shares ISA.

Investing in recovery stocks within my ISA means any gains will be tax-free for me. This can be a huge benefit when buying stocks that are not really appreciated.

He FTSE 250 The part I’m seeing today I certainly don’t like. Shares of this 146-year-old company fell 45% in October alone. The stock has now fallen an agonizing 83% over the past five years.

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What is this fallen star?

The company I am looking at is a specialized bank. Close Brothers Group (LSE: CBG). This FTSE 250 The company is one of the leading lenders in the UK car finance sector. Unfortunately, this once successful division is currently causing major problems for the bank.

The Financial Conduct Authority (FCA) is currently carrying out a review of the car finance sector, focusing on historical commission payments paid to brokers.

Other large auto finance lenders are potentially affected, including Lloyds Banking Group. However, none of them have the concentrated exposure to Close Brothers’ auto financing.

Close’s accounts from July 2024 show car loans worth £2bn out of a total loan book of £10bn, or 20% of its total loan book.

Lloyds, by contrast, had a £16bn car finance loan portfolio at the end of June. But this represents just 3.5% of its £452bn loan book, which is mostly residential mortgages.

This concentration could be a big problem for Close Brothers if the FCA decides to force car finance lenders to pay compensation to borrowers. Close’s compensation could be very large, relative to the overall size of his business.

Value Trading or Value Trap?

The problem is that I really believe that there are could be an opportunity here. Historically, Close Brothers has had a solid balance with abundant surplus capital.

Throughout this year, the bank’s management has taken steps to raise additional capital. It sold the group’s asset management division and suspended the dividend.

Close Brothers shares are trading at 232p as I write. That means the stock is trading at an 80% discount to its July book value of around 1,200 pence per share.

It is possible that when the FCA review is completed, Close Brothers will be able to pay the necessary compensation and return to business as usual.

Possible, but not certain.

what i’m doing

The value investor in me sees a potential opportunity here. But the reality is that it is impossible to predict what the potential liability for compensation might be.

If the PPI saga is anything to go by, this overhaul of car finance could be longer and much more costly for lenders than currently expected.

A Court of Appeal ruling against Close Brothers in October made matters worse. It seemed to suggest that the FCA could require a stricter disclosure standard than previously thought.

For me, this situation is too speculative. I will not add the shares to my ISA. But I’ll be watching with interest.