Lloyds shares slump amid questions over motor finance legal battle
Lloyds shares slumped this morning even as the banking giant declared it would not have to top up its provisions following the confirmation of a motor finance redress scheme.
The group – which owns the UK’s largest car finance lender Black Horse – said it had “undertaken an assessment of the implications and impact” of the final redress and believed the £2bn set aside would suffice.
On Thursday morning, the bank’s stock tumbled 1.6 per cent on the news, falling to 96p. But this did come amid a widespread sell-off across the City’s blue-chips as Donald Trump’s latest threats on Iran spooked markets.
Barclays and Close Brothers each shed two per cent to 401p and 406p respectively.
Lloyds was originally on the hook for £1.2bn in car finance provisions, before setting aside another £800m in October, which led to profit sliding 36 per cent.
Derren Nathan, head of equity research at Hargreaves Lansdown, said: “In simple terms, Lloyds may have set aside more than it needs and could release somewhere in the region of £400mn over time, a modest but welcome boost to profits.”
Lloyds sees ‘number of uncertainties’
But Lloyds did add a “number of uncertainties” remain regarding how the scheme unfolds, including response rates, operational costs and “any litigation”.
“The ultimate outcome may also differ dependent upon potential actions by various parties, including legal proceedings and complaints.”
Following the bank’s third-quarter results last October, finance boss William Chalmers refused to rule out a legal challenge from Lloyds, should the scheme not be adapted as Lloyds sees fit.
“I shan’t comment any further on what we’ll do beyond the consultation process itself,” he said.
Analysts have already begun to predict another legal battle, which could come from a number of lenders exposed to the market and still have major consequences for Lloyds. The Financial Conduct Authority (FCA) was tipped to be bracing for any litigation after splitting its redress into two separate schemes.
The watchdog held onto a major contention for the industry, with deals going back to 2007 still set to be included in the redress. But the FCA has said it would run two schemes, one for 2014 to 2024 deals, which will allow payments to begin being made this year, and a second relating to deals pre-2014. The deadline for this scheme to be set up is August 2026.
Benjamin Toms, equity analyst at RBC, said: “We think that it is highly likely that at least one, if not multiple, of the many interested parties will ask the administrative courts to review the scheme.”
Toms added this reaction was likely “envisaged by the FCA” through its introduction of two schemes.