𝓤𝓷𝓲𝓽𝓮𝓭 𝓝𝓮𝔀𝓼

Shares in major lenders soared on Monday morning as businesses and markets reacted to the Supreme Court ruling on car finance mis-selling.

The ruling on Friday came after stock markets closed, meaning market reaction hit at the start of the new week – with Lloyds Bank rising more than 7 per cent and Chase Brothers shares shooting up more than 30 per cent initially, before settling back to just over 20 per cent up.

Others in the British banking sector also rose, with Barclays and NatWest up close to 2 per cent.

Lenders are on the line to pay out up to £18bn in compensation to those affected, but the ruling found them not liable for hidden commission payments which could have sent reimbursement costs soaring. The banks had largely already set aside a provision for paying out compensation, though each had previously noted the wide range of possible outcomes from the court case, meaning they could not necessarily plan for it entirely.

However, having allocated around £1.2bn towards payouts already, Lloyds have now said any additional funds they have to set aside for the same reason are “unlikely to be material in the context of the group”, adding that “the provision will continue to be reviewed for any further information that becomes available, with an update provided as and when necessary.”

Chase Brothers were seen as more exposed to payouts relative to its position and size in the market, hence the more outsized change in its share price.

The court decision has been seen as a “win” for lenders by significantly limiting the potential payouts in compensation, according to experts.

But the judgment left open the door for potential redress claims for very large commissions, which the Supreme Court said were unfair and therefore potentially unlawful.

Close Brothers – which together with South Africa’s FirstRand Bank had mounted the legal challenge against a Court of Appeal ruling that “secret” commission payments on motor finance were unlawful – said over the weekend that it welcomed the Supreme Court judgment.

It had put by £165m to cover potential redress, which sent it slumping to a £103.8m half-year loss, and warned in March over a further £22m hit to annual figures from legal and other costs linked to the motor finance case.

Get a free fractional share worth up to £100.
Capital at risk.

Terms and conditions apply.

Go to website

ADVERTISEMENT

Get a free fractional share worth up to £100.
Capital at risk.

Terms and conditions apply.

Go to website

ADVERTISEMENT

Close Brothers said there “remains uncertainty as to the range of outcomes, and the financial impact to the group, including any impact on its provisioning assessment” until the outcome of the FCA’s consultation is clear.

Additional reporting by PA