By Kirstin Ridley
LONDON (Reuters) -Lloyds Banking Group helped propel banking stocks higher on Wednesday after the UK markets regulator published proposals for a redress package for motor finance mis-selling that was lower than expected by some analysts.
Shares in the British bank, a leading motor finance lender, rose 2.6% by 1115 GMT following publication of the Financial Conduct Authority’s (FCA) 360-page consultation after-hours on Tuesday, which estimated the motor finance industry could pay 8.2 billion pounds ($11 billion) in redress before costs.
Shares in Barclays rose 1.3%, outpacing the FTSE 100, which was up 0.84%. Close Brothers’ stock surged at the open before trading 0.6% higher.
The figure remains significant and the scandal is still one of the costliest to hit Britain’s financial industry. But it came in below the regulator’s initial estimate of 9 billion to 18 billion pounds. Analysts said that it implied a 2.5 billion improvement on the FCA’s original central case after including 2.8 billion pounds of estimated operational costs.
CARMAKERS’ LENDING BUSINESSES OWE HALF THE BILL
Banks have put aside more than 2 billion pounds to cover compensation, but just under half the proposed liabilities will be borne by “captive lenders” – wholly or partly-owned subsidiaries of vehicle manufacturers, the FCA said.
The regulator said that while most bank and captive lenders face relatively low liabilities, a small number face significantly higher costs.
The redress scheme is designed to compensate consumers for around 14.2 million motor loan deals that broke laws and regulations between 2007 and 2024 by failing to adequately disclose commission and contractual ties between lenders and car dealerships.
Analysts at Citi said the total impact of compensation was higher than its expectations and both Citi and Jefferies expect Lloyds will need to set aside 1.5 billion pounds, up from the 1.15 billion the bank has provisioned.
But RBC analysts said Lloyds could cut the amount it had set aside to 850 million pounds, while Barclays and Close Brothers were covered by existing provisions.
Lloyds said it was “assessing the implications and impact” of the consultation and that it would update the market when appropriate.
The FCA’s industry-wide consultation on the proposals, which are based on complex calculations and a number of variables, ends on Nov. 18.
“Overall, we see the FCA’s proposals as confirming our view that any further motor finance provisions for UK banks are likely to be limited..,” said JP Morgan analysts in a note.
($1 = 0.7454 pounds)
(Reporting by Kirstin Ridley; Editing by Tommy Reggiori Wilkes and Jane Merriman)
