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Lloyds Banking Group has allocated £1.2 billion to address potential compensation payouts related to its motor finance commission practices, as the bank reported a 20% drop in annual profits. This comes as the group braces for the financial impact of these arrangements.
A newly announced provision of £700 million in the fourth quarter supplements the £450 million already earmarked last year, bringing the total to £1.2 billion. The bank’s exposure stems from its Black Horse brand, a major player in the UK car finance market. The provisions suggest a significant number of customers may be eligible for compensation.
Shares are up by just over three per cent in the first hour of trading after the announcement of their results, following a more sustained 48 per cent rise across the last year. Lloyds has a market cap of around 38 billion, making it one of the London Stock Exchange’s 20 biggest companies by value.
In its annual results, Lloyds reported a pre-tax profit of £6 billion for 2024, a fifth lower than the £7.5 billion generated the prior year, and coming in below analysts’ expectations.
The decline was driven by lower total income for the group, higher business expenses and the higher impairment charge.
Lloyds said the extra £700 million provision was taken in light of a court judgment on the issue in October.
That found it was unlawful for car dealers to receive commission on motor finance from lenders without a customer’s informed consent.
The decision opened the door for a potential fresh wave of complaints from consumers who think they may have been mis-sold car finance in previous years.
Lloyds said that “clearly significant uncertainty remains around the final financial impact” and that it welcomes the outcome of a Supreme Court hearing set for April.
It comes as banking giant HSBC revealed it is kicking off a round of jobs cuts in the UK and worldwide as it seeks to slash costs by 1.5 billion US dollars (£1.2 billion) by the end of 2026.
The group said it will look to reduce its global staff costs by 8%, with senior managers and those in its newly merged wholesale corporate and institutional arm set to be in the line of fire.
HSBC warned that the UK head office is likely to bear the brunt of the cuts, but declined to give details of how many jobs will go, or provide a breakdown by country.
Group chief executive Georges Elhedery said the group is “not tracking headcount reduction” and is instead focusing on lowering costs.