Lloyds Banking Group (LSE: LLOY) shares dipped sharply on Monday afternoon (17 February). They misplaced 4.3% within the area of simply quarter-hour, however pulled again a bit to finish the day down 2%. What’s occurring?

It’s all concerning the automotive mortgage mis-selling factor, and Chancellor Rachel Reeves’ try to intervene. She beforehand wrote to the Supreme Courtroom with a warning that any harsh consequence may injury the provision of loans. And she or he urged that “any remedy should be proportionate to the loss actually suffered by the consumer and avoid conferring a windfall.”

Courtroom rejection

The information broke Monday that the courtroom has rejected the federal government’s strategy.

However what does this all imply for Lloyds and different banks? Lloyds isn’t the one one to fall in response to the information, as Shut Brothers Group ended the day with an 8% droop. Shut Brothers, a a lot smaller lender, may face critical issues if it’s hit with a giant penalty.

The FTSE 250 firm posted a modest £100m revenue after tax for its final full 12 months. And in a November buying and selling replace, Finance Director Mike Morgan spoke of “the significant uncertainty resulting from the FCA’s review of historical motor finance commission arrangements.”

Lloyds, with a revenue after tax of £5.5bn final 12 months, appears much more capable of shrug off any fines with out an excessive amount of long-term hurt. However it may nonetheless be painful, and will give long-suffering shareholders yet one more kick.

What it means

What would possibly come down on the heads of Lloyds and the others remains to be removed from clear. Some, nevertheless, are suggesting complete penalties throughout the sector of up to £30bn.

The Lloyds board has stated treasured little about the entire thing. With every quarterly replace, the financial institution simply retains saying issues like “no further charges in respect of the FCA review of historical motor finance commission arrangements.” That’s no change from the £450m provision introduced with 2023 full-year outcomes a 12 months in the past.

Administration should absolutely share their present ideas on the affair in FY24 outcomes due Thursday (20 February). Mustn’t they? I gained’t be alone in checking what they are saying the second it’s launched.

What ought to we do?

The alternatives going through shareholders and would-be traders stay the identical. For me, it’s received nothing to do with any Treasury speak. Or any day-to-day speculations on the probe’s outcomes, or short-term ups and downs in share costs. No, it’s all concerning the precise consequence of the courtroom course of, with the case set for April. And I’m unsure even that may make a lot distinction for me.

We’re a projected price-to-earnings (P/E) ratio of 9.7 for the 12 months simply ended. We are able to verify or not on Thursday. Forecasters anticipate earnings to dip in 2025 although, pushing the P/E to 11 earlier than earnings development will get it down to 7.5 by 2026. There’s an anticipated dividend yield of 4.6%.

Lloyds clearly faces retail banking danger within the subsequent couple of years, and I see that as the true long-term key. At at the moment’s valuation I feel I’ll proceed to carry my Lloyds shares, regardless of the Supreme Courtroom would possibly resolve.

I’ll anticipate the outcomes and for the courtroom case to conclude earlier than I resolve whether or not to purchase extra.