Shares in the bank climbed sharply as it announced it had set aside a further £700 million to cover claims arising from a potential motor finance mis-selling scandal, which Lloyds is exposed to through its Black Horse brand. It added to the £450m which the bank has already provided last year.
The mis-selling issue centres on whether consumers were clearly told car dealers would be paid commission when buying motor finance products.
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Lloyds’ chief executive Charlie Nunn said today that “significant uncertainty remains around the financial impact”, as he welcomed the fact an expedited Supreme Court hearing on the issue would be held at the start of April.
The bank’s results for 2024, published today, showed that the extra provisions contributed to profits falling and coming in below expectations last year, though the bottom line was also impacted by a drop in net interest income and a rise in operating expenses.
However, despite the lack of clarity over the eventual bill for car financing compensation, the upward movement in the bank’s share price today may suggest the City was content with what it heard from the overall. That the bank increased the total ordinary dividend by 15% to 3.17p per share and a buyback programme worth up to £1.7 billion may also have impressed investors.
“A significant increase in provisions associated with motor finance mis-selling is unlikely to have caught investors on the hop,” said Russ Mould, investment director at AJ Bell.
“However, the fact the government’s attempt to intervene on lenders’ behalf was rejected by the Supreme Court is obviously unhelpful and the increased provision meant profit came in below forecasts.
“This issue remains a lingering uncertainty for the business ahead of the latest hearing in early April but the decision to sanction a sizeable share buyback and deliver a healthy increase in the dividend suggests management are not overly concerned.
“The short- and medium-term outlook for returns is in line with previous commentary from the company and the key net interest margin was a smidge ahead of previous guidance. Lloyds will be hoping for a Goldilocks scenario where rates stay high enough to support margins, and the economy remains in decent enough shape that the level of bad debts doesn’t start to escalate from here.”
