Motor finance ruling hands City banks £7bn stock boost
The FTSE 100’s banking giants added billions to their market value on Monday after a hefty boost from the Supreme Court’s motor finance ruling.
Lloyds Banking Group bolstered its market capitalisation by over £3.5bn after a seven per cent surge to a five-year high on the back of the top Court’s ruling last Friday.
The group – which owns leading vehicle finance provider Black Horse – had set aside £1.2bn in provisions but enjoyed a boost after the Court upheld the appeal of two banks.
Lenders Close Brothers and First Rand successfully overturned the Court of Appeal’s October ruling that it was unlawful for banks to pay a commission to a car dealer without the customer’s informed consent.
The Supreme Court found that claims against the lenders couldn’t succeed based on fairness, known as equity, or tort, which refers to any wrongful actions worthy of compensation.
Barclays who had set aside £90m in provisions was up near two per cent adding £1bn to its value.
Meanwhile Close Brothers soared over 20 per cent on the back of its legal win, sealing an extra £120m.
Derren Nathan, head of equity research at Hargreaves Lansdown, said: “Friday’s Supreme Court ruling on car finance commissions is a win for UK lenders, bringing some much-needed legal certainty.
“Lloyds was one of the most exposed names, and investors should be relatively pleased with this outcome – it’s broadly aligned with existing expectations, helping to alleviate fears that the final bill could be significantly higher.”
European banks on a roll
The rallies come amid a solid period for European banks, with HSBC notching a record share price in July and Barclays and Santander surpassing 2008 heights.
This marks a speedy recovery from a stock hit earlier this year after President Donald Trump’s tariff onslaught sent bank shares tumbling.
The FTSE 350 bank index fell to a low of 4,700.07 amid the market turmoil but has since breezed past a recovery point
The index is up nearly 20 per cent in the last six months topping 6,291, with a gain of over 50 per cent for the last year.
Lenders with no exposure to the historical market enjoyed Monday’s rally with Natwest up over two per cent and HSBC nearly one per cent.
The FTSE 100’s ‘Big Five’ banks – Barclays, Standard Chartered, HSBC, Natwest and Lloyds – added a combined £7.5bn to their market values by midday trading.
This follows the firm’s securing a combined £12.8bn in pre-tax profit for the three months to June 30.
Despite the general legal win for the banks, the Financial Conduct Authority confirmed on Sunday it would consult on a redress scheme expected to cost between £9bn and £18bn.
The scheme will cover agreements going back to 2007 in line with complaints that the Financial Ombudsman Service can consider, which has sparked some fierce backlash.
Stephen Haddrill, director general of the Finance & Leasing Association said the industry had a “major concern about the redress scheme going back to 2007”.
Haddrill told BBC’s Today programme: “I just think that is completely impractical. It is not just firms that don’t have the details about contracts back then, customers don’t either.”