(Feb 20): Lloyds Banking Group plc set aside an additional £700 million (RM3.92 billion) for possible costs it will face for a regulatory probe into its motor finance business, meaning it missed earnings expectations in the fourth quarter.
 
The company posted pretax profit of £824 million, below the £1.03 billion average of analyst estimates. Despite the provision, Lloyds said it remains committed to shareholder returns and announced a £1.7 billion buyback programme along with a 15% rise in dividends. 

Shares in the bank rose as much as 4.7% in London trading. Jefferies analysts wrote in a note that Lloyds had produced “a comforting set of numbers” with medium-term guidance that was better than expected. 

Lloyds, the biggest provider of car finance, had already set aside £450 million to pay for possible compensation and other costs tied to the Financial Conduct Authority’s (FCA) ongoing probe into whether auto loan borrowers were overcharged. The Supreme Court is due to hear a case on the matter in April, while the watchdog is set to announce its next steps in May.

“Clearly significant uncertainty remains around the final financial impact,” chief executive officer Charlie Nunn said in a statement. “In this context, we welcome the expedited Supreme Court hearing.”

Nunn said in an interview with Bloomberg TV he expects the court to make its decision between the summer and the third quarter.

Chief financial officer William Chalmers told reporters the provision tried to account for legal uncertainty, questions around what the FCA will do in response and how customers will react. The ultimate cost could still be lower or higher, he added. 

Analysts at Bank of America Corp recently estimated that the industry could face as much as £38 billion in costs tied to the saga. Lloyds could be on the hook for £3 billion, they found. The lender’s running total currently stands at £1.15 billion.  

Shares in Lloyds dropped earlier this week after the court refused to let the Treasury make arguments in the closely-watched case. Nunn said the government’s intervention was a “strong statement of intent” and the court’s rejection made no difference to Lloyds’s provision. He also doesn’t see any read-across to other loans sold on commission, such as mortgages.  

Nunn is three years into an overhaul at the bank to focus more on affluent customers and services not tied to interest rates. Lloyds is also shaking up its staffing in technology and other areas to support the shift to digital banking and trim costs. The Lloyds boss said the rejig, which included branch closures and redundancies, had so far led to £1.2 billion in cost efficiencies. 

While Chalmers told reporters the bank expects “subdued” economic growth this year, it also sees customers continuing to repay their loans. Lloyds booked a £431 million charge in 2024 for loans that could sour, higher than the previous year but less than analysts expected.

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