Lloyds Banking Group has warned that the final cost of the motor finance scandal will exceed the £1.2bn it has set aside, as the proposed compensation scheme is likely to require a material additional provision. The bank said on Thursday that its initial analysis indicated further costs, though uncertainties remain over the interpretation and implementation of the proposals.
Close Brothers, a major car loan provider, also said the scheme would likely lead to a material increase in its existing £165m provision. The warnings came despite the Financial Conduct Authority (FCA) estimating on Tuesday that compensation payouts would average £700 per customer, lower than the previously anticipated £950, with a total industry bill of £8.2bn to £9.7bn.
Shares in Lloyds fell by more than 3% on Thursday morning, erasing gains from the previous day, while Close Brothers plunged nearly 10%. Steve Clayton of Hargreaves Lansdown said the statement was not in the market's playbook and shares reacted badly.
Separately, Secure Trust Bank issued a profit warning due to its car finance division, sending shares down over 16%. It expects underlying pre-tax profit to fall by up to £9m below expectations. In contrast, S&U reported a 22% rise in half-year profit to £15.6m, with lower motor finance provisions.
