Lloyds shares jump despite profit miss, extra £700m for car claims

(Sharecast News) - Shares in Lloyds Bank surged on Thursday as the UK mortgage lender said annual profit fell 20.4%, worse than expected, and said it had set aside an extra £700m to cover potential claims against motor finance commission deals, taking the total figure to beyond £1bn. Lloyds has set aside a total of £1.15bn for motor finance claims, including £450m from 2023, which is its "best estimate" of the potential impact pending a Court of Appeal hearing in April about the scope of a review into the scandal.

It noted that there was "a significant level of uncertainty in terms of the final outcome. As a result, the final financial impact could differ materially to the amount provided".

The bank owns Black Horse, the UK's biggest provider of vehicle finance, which leaves it exposed to the car loans market. Close Brothers and MotoNovo Finance are appealing against a Supreme Court ruling in October in three motor finance cases that widened the scope of potential claims.

Finance Minister Rachel Reeves tried to intervene in a bid to see any potential compensation payments kept to a minimum, but the Supreme Court rejected the Treasury's application.

Pre-tax profit came in at £5.97bn, compared to £7.5bn a year earlier and consensus estimates of £6.39bn. Net interest margin - the difference between savings and loan rates - fell 16 basis points to 2.95%.

Underlying net interest income of fell 7% to £12.8bn reflecting falling interest rates.

"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," said AJ Bell investment director.

"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.

Reporting by Frank Prenesti for Sharecast.com