Lloyds says it is facing greater hit than expected from car loan finance scandal
|
Version 2 of 3. Banking group predicts bill will top £1.2bn it has set aside, as Close Brothers also says it expects to pay more Car finance scandal: how much compensation could you get? Business live – latest updates Lloyds Banking Group has warned it is likely to take a greater hit from the motor finance scandal than expected, with the final cost exceeding the £1.2bn it had set aside. Close Brothers, one of the UK’s biggest providers of car loans, also said that the proposed compensation scheme for victims was “likely to result in a material increase in its existing provision of £165m”. The higher compensation provisions come despite the City regulator saying on Tuesday night that people who were mis-sold car finance were likely to receive compensation payouts averaging £700 from about 14m unfair loans, less than the £950 payouts previously anticipated. Shares in car finance lenders, including Lloyds, rallied in response on Wednesday. However, Lloyds’ stock fell by more than 3% on Thursday morning after it indicated the bigger than expected costs. Close Brothers shares plunged by nearly 10%. The Financial Conduct Authority put lenders’ total compensation bill at £8.2bn, although it could rise to £9.7bn. This is at the bottom end of its earlier forecast range of between £9bn and £18bn. However, Lloyds said on Thursday: “Based on our initial analysis and the characteristics of the proposed scheme, an additional provision is likely to be required which may be material.” The bank added that there were uncertainties around the interpretation and implementation of the proposals, and that further analysis was needed. The high street bank in February set aside a further £700m to cover compensation payments to customers, taking its total provision to almost £1.2bn. Its provisions have weighed on its financial performance, pushing its 2024 pre-tax profits down by 20%, to just under £6bn. At the time, RBC Capital estimated that the bank could ultimately be on the hook for up to £4.6bn. The car finance scandal is the biggest since the payment protection insurance (PPI) mis-selling debacle, where 34 million consumers received an average of about £1,000 each. Lloyds was also the most exposed to that scandal. Steve Clayton, the head of equity funds at Hargreaves Lansdown, said: “The statement from Lloyds was not in the market’s playbook and the shares have reacted badly, erasing yesterday’s gains, with Close Brothers similarly impacted.” Sign up to Business Today Get set for the working day – we'll point you to all the business news and analysis you need every morning after newsletter promotion Separately on Thursday, the specialist lender Secure Trust issued a profit warning, sending its shares more than 16% lower. It now expects its underlying pre-tax profit this year to fall below analysts’ expectations by up to £9m, due to the performance of its car finance division. However, it remains confident of 30% year-on-year growth in profits. Secure Trust is in the process of exiting vehicle finance, which may require additional provisions for onerous supplier contracts, which would be treated as exceptional costs. The motor and property finance specialist S&U released upbeat financial results, reporting a profit before tax of £15.6m for six months to 5 August, up 22% on a year earlier. Its share price rose by 1.5%. It set aside nearly £8m for motor finance in the period, against £18m a year earlier. The best public interest journalism relies on first-hand accounts from people in the know. If you have something to share on this subject you can contact the Business team confidentially using the following methods. Secure Messaging in the Guardian app The Guardian app has a tool to send tips about stories. Messages are end to end encrypted and concealed within the routine activity that every Guardian mobile app performs. This prevents an observer from knowing that you are communicating with us at all, let alone what is being said. If you don't already have the Guardian app, download it (iOS/Android) and go to the menu. Scroll down and click on Secure Messaging. When asked who you wish to contact please select the Guardian Business team. SecureDrop, instant messengers, email, telephone and post If you can safely use the tor network without being observed or monitored you can send messages and documents to the Guardian via our SecureDrop platform. Finally, our guide at theguardian.com/tips lists several ways to contact us securely, and discusses the pros and cons of each. |