Lloyds Banking Group PLC (LSE:LON:LLOY) is still facing potential compensation costs of between £1-3.5 billion for motor finance loans after the defeat for Barclays (LON:BARC) in court yesterday, Jefferies estimates.
The US bank says that the decision going against Barclays was not a surprise as judicial reviews rarely find against the financial ombudsman service (FOS) and the bar for Barclays was high.
But some of the review details were ‘modestly helpful’ to the case of other lenders in the ongoing Court of Appeal and FCA actions, it adds.
The key remains the Supreme Court review, Jefferies said, adding while it is “highly likely” that lenders will have to pay redress for discretionary commission arrangements or DCAs the crux remains is if the scope is widened beyond these.
“The big question remains whether all forms of commission are in scope. But in all reasonably plausible scenarios, we continue to think the cost to Lloyds will be £1.0-3.5bn and we believe this is more than discounted in the share price.”
Panmure Liberum adds that the Barclays case rated specifically to discretionary commission and was one of the original cases that prompted the FCA motor finance review in January this year.
“Given this is one of the key decisions the FCA has been waiting on before announcing its planned next steps, this outcome makes it highly likely there will be some form of redress scheme for customers subject to discretionary commission on motor finance deals.
Like Jefferies, Panmure says the big unknown remains whether the scope will be extended beyond just discretionary commissions and that depends on the Supreme Court’s decision.
“The appeal will be listed during Hilary Term in 2025, meaning the date for the Supreme Court hearing will be announced sometime between mid-January and mid-April next year although not necessarily heard or concluded then.”
Shares in Lloyds rose by 1.4% to 55p with Close Bros up 1% at 235p.