Lloyds Bank forced to set aside another £700 million after car finance probe

Lloyds Banking Group has had to set side another £700 million to cover the fallout from a probe and related court ruling on the historic mis-selling of car finance.

The banking group’s chief executive hit out at the court’s decision saying its “at odds” with decades of regulation.

“The decision by the Court of Appeal . . . seems to be at odds with 30 years of regulation, and that creates a problem in the minds of investors . . . not just for the financial services sector, but actually a broader investability question in the UK,” said Lloyds’ chief executive Charlie Nunn.

Lloyds also announced its fourth-quarter results today – statutory profits before tax stood at £824 million in the final quarter of the year which was below analysts’ estimates of £1.2bn and down from £1.8bn the previous year.

The more positive response to Lloyds’ full-year numbers compared with its immediate peer group is less a reflection of the results themselves and more related to the fact it had lagged behind its rivals heading into this earnings season.

AJ Bell investment director Russ Mould said: “A significant increase in provisions associated with motor finance mis-selling is unlikely to have caught investors on the hop. However, the fact the government’s attempt to intervene on lenders’ behalf was rejected by the Supreme Court is obviously unhelpful and the increased provision meant profit came in below forecasts.

“This issue remains a lingering uncertainty for the business ahead of the latest hearing in early April but the decision to sanction a sizeable share buyback and deliver a healthy increase in the dividend suggests management are not overly concerned.

“The short- and medium-term outlook for returns is in line with previous commentary from the company and the key net interest margin was a smidge ahead of previous guidance. Lloyds will be hoping for a Goldilocks scenario where rates stay high enough to support margins and the economy remains in decent enough shape that the level of bad debts doesn’t start to escalate from here.”