Will Lloyds Need To Trim £2bn Buyback After Court Ruling?

Lloyds Banking Group (LON:LLOY) may be forced to dramatically scale back its £2 billion share buyback program for the next year due to a recent adverse ruling from the Court of Appeal on motor finance. This setback poses a significant financial challenge for the banking group, potentially impacting its capital return plans to shareholders with some suggesting the planned buyback could be trimmed in half.

The ruling has led RBC Capital analysts to reassess the potential financial exposure for Lloyds and other banks involved with motor finance. The revised estimates suggest that Lloyds could face a liability of approximately £3.2 billion. This figure is part of an industry-wide revision that aggregates to almost £1.3 billion. Other banks will also feel the knock-on effects of this legal decision, albeit to varying degrees.

Santander UK, another major player in the motor finance market, is set to experience a substantial hike in its costs due to the Court of Appeal's judgment, with the new estimates projecting an increase from £1.1 billion to £1.4 billion. This signifies a material increment to its initially anticipated liability and underscores the widespread impact of the ruling within the banking sector.

Meanwhile, Close Brothers Group anticipates a more conservative approach going forward. The company plans to slow down its motor book lending by 10% in the subsequent years in an effort to protect its capital. Alongside these prudential measures, Close Brothers Group has set its sights on reinstating dividend payments by the year 2026, balancing caution with shareholder value.

Another consequential development as a result of the ruling is the expected postponement of the Financial Conduct Authority's (FCA) review of discretionary commissions in motor finance. Initially scheduled for May 2025, this review is now likely to be delayed, affecting the regulatory timeline and potential reforms within the sector.

Within the roster of impacted banks, Barclays appears to be the least affected. According to recent estimates, the financial impact for Barclays will remain relatively contained at £400 million. This comparatively minor exposure is in stark contrast to the larger figures estimated for its counterparts.

In other financial news, Thor Energy has expanded its portfolio in the energy sector by acquiring an 80.2% stake in Go Exploration, an Australian company that’s exploring for hydrogen and helium. The company holds an extensive exploration acreage of over 22,000 square kilometers, marking a strategic investment move by Thor Energy in a time of growing interest in alternative energy resources.

For Lloyds and other banks, the recent Court of Appeal decision is not simply a one-off event but an issue that will require careful financial management and strategic adjustments in the coming years. The full implications of this judgment for the banks’ bottom lines and operational strategies will unfold over time, with shareholder returns and capital planning being reevaluated in response to the new fiscal landscape ahead.