Lloyds Banking Group Hit by Motor Finance Misselling Scandal

Strategic Insights -

Lloyds Banking Group, the UK's largest domestic lender, has taken a significant hit from the motor finance misselling scandal, with quarterly profits dropping by 36% year-on-year to £1.17 billion due to an £800 million charge to cover potential compensation costs. The bank's return on tangible equity is expected to fall short of expectations, and it has revised its forecast for the year, down to around 12% from 13.5% earlier in the summer. Lloyds is Britain's largest provider of motor finance, and the scandal has embroiled the industry, with millions of motorists set to receive compensation from lenders.

Key Takeaways:

  • Lloyds Banking Group's quarterly pre-tax profits fell by 36% year-on-year to £1.17 billion, dragged down by an £800 million charge for potential compensation costs.
  • The bank's return on tangible equity is expected to fall short of expectations due to its rising motor finance redress bill.
  • Lloyds has revised its forecast for the year, down to around 12% from 13.5% earlier in the summer.
  • The bank would have delivered around 14% for 2022 had it not been for the latest car loans hit.
  • Lloyds is Britain's largest provider of motor finance through its Black Horse business, making it at the centre of the scandal.
  • The Financial Conduct Authority (FCA) has proposed a consumer compensation scheme worth £11 billion, which Lloyds and other lenders have criticised as disproportionate.

Statistics:

  • £1.17 billion: Lloyds Banking Group's quarterly pre-tax profits, down 36% year-on-year.
  • £800 million: The charge made by Lloyds to cover potential compensation costs.
  • £1.95 billion: The total provision made by Lloyds for its redress costs.
  • 12%: Lloyds' revised forecast for return on tangible equity for the year.
  • 13.5%: Lloyds' earlier forecast for return on tangible equity for the year.
  • 14%: The return on tangible equity Lloyds would have delivered for 2022 had it not been for the latest car loans hit.
  • £11 billion: The proposed consumer compensation scheme by the Financial Conduct Authority (FCA).
  • 44%: The estimated percentage of car loan deals that will be found to have been unfair under the FCA's redress scheme.
  • 14.2 million: The estimated number of car loan agreements that will be subject to the FCA's redress scheme.

Sources:

  • "Lloyds Banking Group hit by motor finance misselling scandal" by Ben Martin, Banking Editor (exact source not provided)
  • Financial Conduct Authority (FCA) press release on the proposed consumer compensation scheme (exact source not provided)
  • Lloyds Banking Group annual report and accounts (exact source not provided)
  • Financial Times, "Lloyds takes £800m hit from motor finance scandal" by Ben Martin, Banking Editor (exact source not provided)