(Reuters) - Lloyds Banking Group reported a 20.4% drop in annual profit on Thursday, missing market expectations, as interest rate cuts hit lending margins and Britain's sluggish economic recovery
Lloyds Banking Group Allocates Additional $882 Million for Car Finance Inquiry
By Chandini Monnappa and Chris Thomas
(Reuters) -Lloyds Banking Group warned on Thursday of "significant uncertainty" around the impact of a British motor finance inquiry, after it set aside another 700 million pounds ($882 million) to cover a potential compensation scheme.
The bank's latest provision, which led to a bigger-than-expected drop in annual profit, means Lloyds has now set aside a total of 1.15 billion pounds following a regulatory sector-wide investigation into historic mis-selling of motor finance.
Lloyds CEO Charlie Nunn told reporters that the uncertainty around the investigation's impact was "fairly extensive".
The bank is one of the biggest motor finance providers in Britain, but its shares rallied after it also announced a 1.7 billion pound share buyback and maintained its guidance for 2026, which analysts had not expected.
Lloyd's share price soared more than 7% to its highest level since December 2019, and was on course for its best day since March 2022.
Britain's market for car finance - around 80% of new vehicles in the UK are bought on finance - was thrown into disarray last year after the Court of Appeal ruled it was unlawful for car dealers to receive commissions from banks that provide car loans without a customer's informed consent. That fuelled market concerns that a potential redress scheme could reach tens of billions of pounds.
An attempt by finance minister Rachel Reeves to intervene in a landmark Supreme Court appeal was quashed by the court on Monday, sending shares in Lloyds and peer Close Brothers lower.
Some lawyers have said the government could still lean on the Financial Conduct Authority to limit the scope of any compensation, as it seeks to ease the burden on businesses and ignite stagnant economic growth.
FOCUS ON OUTLOOK, DIVIDEND
Lloyds is sticking to its 2026 forecast of a return on tangible equity of at least 15%, higher than the 14.2% analysts are expecting, according to company-compiled estimates.
It said it would pay a total dividend of 3.17 pence per share for 2024, up from 2.76 pence a year ago, but below analysts' expectations of 3.26 pence according to data compiled by LSEG.
Gary Greenwood, an analyst at Shore Capital, said a better-than-expected dividend and the share buyback suggested management "is not overly concerned about the motor finance issue spiralling out of control".
Britain's biggest mortgage lender reported a pretax profit of 5.97 billion pounds for 2024, compared to 7.5 billion a year ago. Analysts were expecting profit of 6.39 billion pounds, according to a company-compiled consensus.
Lloyds shares have rallied more than 20% in 2025, and are now up 55% in the past 12 months, although that rise lags rivals NatWest and Barclays which have seen their stock prices soar as higher interest rates swelled profits.
For 2024, Lloyd's underlying net interest income fell 7% to 12.85 billion pounds and its net interest margin contracted by 16 basis points to 2.95%, hurt by an overall 50 basis point-cut in base rate by the central bank.
($1 = 0.7932 pounds)
(Reporting By Sinead Cruise, Chandini Monnappa Chris Thomas and Kirstin Ridley; Editing by Varun H K, Tommy Reggiori Wilkes, Emelia Sithole-Matarise and Susan Fenton)
