Shares in lenders soar after motor finance court ruling
Barclays and NatWest shares lifted 2% as the wider sector also received a shares boost.
Lloyds and Close Brothers are seen as the most exposed to the motor finance saga and have put by hefty provisions for possible compensation bills relating to the affair.
The UK's highest court ruled that lenders are not liable for hidden commission payments in car finance schemes, finding that car dealers did not have a relationship with their customers that would require them to act only in the customers' interest.
The 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.
The Financial Conduct Authority (FCA) said on Sunday that it would consult on an industry-wide compensation scheme, meaning millions of drivers could be owed a share of up to £18 billion – though most payouts are expected to be less than £950 each.
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 £165 million to cover potential redress, which sent it slumping to a £103.8 million half-year loss, and warned in March over a further £22 million hit to annual figures from legal and other costs linked to the motor finance case.
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.
On Monday, it added: 'We look forward to engaging with the FCA in respect of the consultation.'
Lloyds said it believes any change to the group's cash set aside for motor finance compensation was 'unlikely to be material', following Friday's court ruling.
It has aside £1.2 billion to cover potential costs and compensation related to commission arrangements.
The group is exposed to the motor finance market through its Black Horse business.
But Lloyds said there continues to be a 'number of uncertainties' and will continue to review its provision.
Lloyds said: 'After initial assessment of the Supreme Court judgment – and pending resolution of the outstanding uncertainties, in particular the FCA redress scheme – the group currently believes that if there is any change to the provision it is unlikely to be material in the context of the group.'
Matt Britzman, senior equity analyst at Hargreaves Lansdown, said the court ruling was 'a win for UK lenders, bringing some much-needed legal certainty'.
'But it's not a home run as the FCA announced plans to explore a compensation scheme that could cost the industry £9 billion to £18 billion.'
He added that Lloyds investors should be 'relatively pleased with this outcome'.
'It's broadly aligned with existing expectations, helping to alleviate fears that the final bill could be significantly higher.'
The FCA said on Sunday that the consultation will be launched by early October. If the compensation scheme goes ahead, the first payments should be made in 2026.
It urged consumers who are concerned they were not told about commission and think they may have paid too much to their motor finance lender to complain now.
They do not need to use a claims management company or law firm and doing so could cost them around 30% of any compensation paid, according to the FCA.
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Reuters
2 hours ago
- Reuters
Breakingviews - Neil Woodford fine belies ongoing illiquid appeal
LONDON, Aug 5 (Reuters Breakingviews) - Neil Woodford's penalty looks odd in the current climate. On Tuesday, the UK Financial Conduct Authority (FCA) fined the fund manager 6 million pounds for poorly managing liquidity risks in his 10-billion-pound vehicle. Woodford's fall from grace is specific, but his big idea, including hard-to-trade assets in a fund format for retail investors, is now mainstream. Woodford, who made his name at Invesco Perpetual for big bets on British stocks like AstraZeneca, was one of the country's most famous stockpickers when he set up his own boutique in 2014. From there, he quickly amassed 10 billion pounds through a mutual fund. An overexposure to unquoted companies like biotechs, however, backfired after his performance lagged, investors yanked their funds, and Woodford was forced to sell his pool of more widely traded assets to honour the requirement to return investors' funds within four days. By the time the Woodford Equity Income Fund was forced to shutter, in June 2019, the fund had just 3.6 billion pounds of assets. And only 8% could be sold in under seven days, the FCA reckons. The fine was a long time coming, given the fund was suspended over six years ago, and retail investors who suffered 'life-changing, opens new tab' financial losses after it was liquidated have been campaigning for greater disclosure over what went wrong, and for reform of the watchdog since then. The FCA has hit Woodford and his management group with 46 million pounds' worth of fines, and banned him from managing a retail fund. Woodford Investment Management said in a statement that it disagrees strongly with the FCA's decision, and argues that the fund's liquidity rules were set externally by the fund administrator, and that the regulator, then overseen by Bank of England Governor Andrew Bailey, 'was fully-sighted' on the fund's situation. It is challenging the fine at a UK court. Arguably, Woodford was ahead of his time. Increasingly policymakers are keen for private investors to get a bigger slice of hard-to-trade assets, where returns are higher than public securities. The hottest product in financial markets is the evergreen structure, pioneered by the likes of Blackstone (BX.N), opens new tab, which allows individual investors to own private assets like credit and equity, and withdraw their money. Those structures are very different from the open-ended vehicle that Woodford ran. They typically seek to limit redemptions to 5% of net assets a quarter, for example. Yet the British stockpicker's fate illustrates that liquidity rules can be hard to adapt to changing situations: his performance suffered after Brexit dented demand for UK stocks. And, whereas Woodford was an outlier, now retail demand for illiquid assets is the mainstream. Oliver Wyman reckons that wealthy individual clients' exposure to private credit could total some $1.5 trillion by 2029 from $300 billion to $400 billion in 2024. If these funds were hit by a Woodford-style run their collapse would have far graver consequences. Follow @Unmack1, opens new tab on X
Powys County Times
3 hours ago
- Powys County Times
BP increases staff cuts to 6,200 and signals further possible reductions
BP has revealed an extra 1,500 jobs and 1,200 contractor roles are being axed across its global workforce by the end of the year and signalled possible further cuts as it ramps up cost savings. The oil giant said it now expects 6,200 jobs to go – about 15% of its office-based workforce – which is higher than the 4,700 cuts announced at the start of the year, with a focus on artificial intelligence (AI) to help drive cost efficiencies. BP also said it had already slashed 3,200 contractor roles since January, with another 1,200 to go by the end of 2025, adding it will 'continue to rigorously review the remaining contractor activity across our businesses and functions'. The group raised the possibility of further cuts as bosses unveiled plans to look for more cost savings and conduct a 'thorough' review of its portfolio as it comes under pressure from shareholders. Its 100,000-strong worldwide workforce will be reviewed further as part of the new push, it confirmed. BP did not give a country breakdown of the extra job cuts this year, but said they will go across its UK and overseas sites. The firm employed about 14,000 UK workers at the start of 2025. It comes as chief executive Murray Auchincloss pledged the FTSE 100 firm would do 'better for its investors' and said there was 'much more to do' under its current three-year plan. BP has been under pressure from shareholders to boost profits and cut costs, with activist investor Elliott Management recently taking a 5% stake in the group. Half-year profits on Tuesday showed profits tumbled by nearly a third as weaker oil prices weighed on earnings, although it posted a better-than-expected performance for the second quarter. It reported a 32% fall in underlying replacement cost profits – the group's preferred profit measure – to 3.73 billion US dollars (£2.81 billion) for the six months to June 30. 2Q has been another strong quarter, both operationally and strategically. We are delivering our plan to grow the upstream and focus the downstream. — bp (@bp_plc) August 5, 2025 Underlying profits fell 15% year-on-year to 2.35 billion dollars (£1.77 billion) between April and June, although this was a significant improvement from 1.38 billion dollars (£1.04 billion) in the first quarter and better than most analysts had forecast, helping shares lift nearly 2%. BP is already working on a plan announced in February to cut costs by up to five billion dollars (£3.8 billion) by the end of 2027. It has also said it will offload 20 billion dollars (£15.1 billion) of assets by the end of 2027. The group's results showed it has already stripped out 900 million dollars (£677 million) in costs over the first half, or 1.7 billion dollars (£1.3 billion) since 2023. BP's aims to ramp up its overhaul process follows talks with incoming chairman Albert Manifold who starts next month, Mr Auchincloss said. Mr Auchincloss said: 'He and I have been in discussions and have agreed that we will conduct a thorough review of our portfolio of businesses to ensure we are maximising shareholder value moving forward. 'We are also initiating a further cost review and, whilst we will not compromise on safety, we are doing this with a view to being best in class in our industry.' 'BP can and will do better for its investors,' he added. In a presentation to analysts and investors, Mr Auchincloss said AI was playing a key part in its overhaul, adding 'technology is helping improve capital productivity and drive cost reductions across the portfolio'. In another move to appease shareholders, the FTSE 100 firm also said it would buy back another 750 million dollars (£565 million) in shares and hike the quarterly dividend payout by 4%. Mr Auchincloss said: 'We are two quarters into a 12-quarter plan and are laser-focused on delivery of our four key targets – and while we should be encouraged by our early progress, we know there's much more to do.' Mr Manifold was recently named to replace incumbent chairman Helge Lund after a difficult past few years in the role.
Reuters
3 hours ago
- Reuters
Woodford and his company face $61 mln fines over fund failure
LONDON, Aug 5 (Reuters) - Former star stock picker Neil Woodford and his company are facing a near 46 million pound ($61 million) combined fine over management failures of a one-time flagship fund that collapsed in 2019, Britain's financial watchdog said on Tuesday. The Financial Conduct Authority (FCA) proposed fining Woodford 5.9 million pounds and banning him from holding senior manager roles or managing funds for retail investors. His Woodford Investment Management (WIM) company will be fined 40 million pounds. The Woodford Equity Investment Fund (WEIF), which was managed by Woodford and WIM, left more than 300,000 investors out of pocket when it was suspended in 2019, following outsized bets on illiquid assets that left it unable to meet redemption requests within a stipulated four-day period. The FCA decision, which follows warning notices last year, has drawn fierce challenges from Woodford and WIM, who have referred the penalty notices to the Upper Tribunal, part of the High Court which deals with challenges to regulatory decisions. The FCA accused Woodford and WIM of making "unreasonable and inappropriate" investment decisions between July 2018 and June 2019 by disproportionately selling liquid investments and not reacting appropriately as the fund's value declined, its liquidity worsened and redemption requests poured in. "The very minimum investors should expect is those managing their money make sensible decisions and take their senior role seriously. Neither Neil Woodford nor Woodford Investment Management did so, putting at risk the money people had entrusted them with," said Steve Smart, the FCA's joint head of enforcement and market oversight. The regulator said Woodford had a responsibility to oversee the management of the fund's liquidity and failed to provide proper oversight of WIM's relationship with Link Fund Solutions (LFS), WEIF's authorised corporate director. In a statement issued by law firm BCLP, WIM said the fund's liquidity was managed in accordance with LFS's framework, which had been "fully visible" to the FCA - and Woodford did not accept that his responsibilities extended to challenging and testing that. Both Woodford and the company believed any loss suffered by investors was the product of bad decisions made by Link after the suspension, which were overseen by the FCA, WIM added. These included a "disorderly fire sale of assets by Link (LFS)". "We believe that the appeal process will shed much-needed light on the events leading to and following the fund's suspension, including the regulator's role in those events, and we welcome the opportunity to set the record straight," it said. The FCA has also criticised LFS for making "critical mistakes and errors" in how it oversaw WEIF's liquidity risk management and controls. A redress scheme worth 230 million pounds has been secured for those investors trapped in the fund when it was suspended. ($1 = 0.7531 pounds)
