Lloyds Banking Group and Close Brothers have seen shares soar higher after a landmark ruling by the Supreme Court on motor finance commission payments softened the blow for the sector.
The decision – which was handed down after the market close on Friday – saw FTSE 100 listed Lloyds shares jump nearly 8%, while Close Brothers stock soared by as much as 34% at one stage in the FTSE 250.
Barclays and NatWest shares also lifted two per cent.
Lloyds and Close Brothers are seen as the most exposed to the motor finance saga and have put by hefty provisions for possible compensation bills relating to the affair.
The UK’s highest court ruled that lenders are not liable for hidden commission payments in car finance schemes, finding that car dealers did not have a relationship with their customers that would require them to act only in the customers’ interest.
The decision has been seen as a “win” for lenders by significantly limiting the potential payouts in compensation, according to experts.
The Financial Conduct Authority (FCA) said on Sunday that it would consult on an industry-wide compensation scheme, meaning millions of drivers could be owed a share of up to £18 billion – though most payouts are expected to be less than £950 each.
Close Brothers welcomed the Supreme Court's decision.
It said there “remains uncertainty as to the range of outcomes, and the financial impact to the group, including any impact on its provisioning assessment” until the outcome of the FCA’s consultation is clear.
It added on Monday: “We look forward to engaging with the FCA in respect of the consultation.”
Lloyds said it believes any change to the group’s cash set aside for motor finance compensation was “unlikely to be material”, following Friday’s court ruling.
It has aside £1.2 billion to cover potential costs and compensation related to commission arrangements.
The group is exposed to the motor finance market through its Black Horse business. But Lloyds said there continues to be a “number of uncertainties” and will continue to review its provision.
Lloyds said: “After initial assessment of the Supreme Court judgment – and pending resolution of the outstanding uncertainties, in particular the FCA redress scheme – the group currently believes that if there is any change to the provision it is unlikely to be material in the context of the group.”
Matt Britzman, senior equity analyst at Hargreaves Lansdown, said the court ruling was “a win for UK lenders, bringing some much-needed legal certainty”.
“But it’s not a home run as the FCA announced plans to explore a compensation scheme that could cost the industry £9 billion to £18 billion.”
(PA) Note: This article has been edited with the help of Artificial Intelligence.
