The Lloyds Banking Group (LSE: LLOY) share price has been pushed largely by the automobile mortgage mis-selling probe in latest weeks. It rose after chancellor Rachel Reeves urged leniency from the Supreme Courtroom in its forthcoming case. And it fell once more when the court docket rejected the federal government’s overtures.

And now Lloyds’ shares have moved up a number of p.c on full-year outcomes morning (20 February) regardless of a 20% plunge in income. Information of a brand new £1.7bn share buyback was one thing of a sweetener. However what did the financial institution say concerning the mis-selling?

Mis-selling provisions

Beforehand, Lloyds had put aside a provision of £450m “for the potential impression of the FCA evaluation into historic motor finance fee preparations and gross sales“. Within the fourth quarter, it’s added an additional £700m to that for a complete of £1.15bn.

In opposition to a background of claims that the full price to lenders might be as excessive a £30bn, will that be sufficient? I do not know, and it appears Lloyds hasn’t both.

This newest assertion provides: “Given that there is a significant level of uncertainty in terms of the eventual outcome, the ultimate financial impact could materially differ from the amount provided”.

Lloyds recorded a return on tangible fairness (RoTE) of 12.3%, which is affordable. However with out the automobile mortgage provisions, it could have been up at 14%.

Money cow

Statutory revenue earlier than tax, down 20%, fell in need of the analyst consensus. Forecasts had £6.39bn on the playing cards, whereas Lloyds delivered brief at £5.97bn.

Regardless of this stumble, Lloyds nonetheless has surplus capital to return to shareholders. It comes partly as a 15% hike within the full-year dividend to three.17p per share, for a 5% yield on the day gone by’s closing price. The board additionally introduced a brand new share buyback of up to £1.7bn. Complete capital returns for 2024 add up to £3.6bn, value roughly 9% of the corporate’s market capitalisation.

This stuff, coupled with Lloyds’ outlook, are key for me. And that outlook suggests a RoTE of about 13.5% in 2025, and better than 15% by 2026. That’s, except some new alleged misbehaviour ought to emerge and rack up sizeable provisions. I’d thought the banks might need discovered to be squeaky clear after the PPI mis-selling scandal, nevertheless it appears not.

What does it imply?

Regardless of my misgivings, I feel we’re seeing a fairly first rate underlying efficiency right here. Particularly as Lloyds advised us that “earnings grew within the second half of the 12 months“. If it continues, that ought to help the most recent steering.

Would I purchase extra shares proper now? I’m not so certain, although I see no urgent cause for me to promote. Forecasts point out a 2025 price-to-earnings (P/E) ratio of 11, which I don’t see as screamingly low-cost. However additionally they present a fall to solely round 7.5 by 2026, and that does appear to be a discount valuation.

Loads can occur between from time to time, together with the mis-selling conclusion. My private stance stays to carry, with a aspect order of short-term nervousness. I’ll wait and see what the Supreme Courtroom says.