Motor finance operators can breathe big sigh of relief
Bank stocks have enjoyed a boost as traders digest the Supreme Court’s ruling on the car finance scandal.
Some of the country’s most exposed lenders, including Lloyds and Close Brothers, saw their share prices jump by 7.55% and 21.62% respectively.
It came after the court delivered a reprieve from a possible £44bn compensation bill.
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Banks will still most likely have to fork out over discretionary commissions – a type of commission for dealers that was linked to how high an interest rate they could get from customers.
The FCA, which banned the practice in 2021, is currently consulting on a redress scheme but the final bill is unlikely to exceed £18bn. Overall, the result has been better than expected for the banks.
Lloyds, which owns the country’s largest car finance provider Black Horse, had set aside £1.2bn to cover compensation payouts.
Following the judgment, the bank said it “currently believes that if there is any change to the provision, it is unlikely to be material in the context of the group”.
The judgment released some of the anxiety that has been weighing over the Bank’s share price.
Jonathan Pierce, banking analyst at Jefferies, said the FCA’s prediction was “consistent with our estimates, and most importantly, we think it largely de-risks Lloyds’ shares from the ‘motor issue'”.
Bank stocks have responded robustly to each twist and turn in this tale, sinking after the Court of Appeal turned against them and jumping (as much as 8% in the case of Close Brothers) when the Supreme Court allowed the appeal hearing.
Concerns about this volatility motivated the Supreme Court to deliver its judgment late in the afternoon so that traders would have time to absorb the news.