Lloyds shares flat despite 36% profit slide on car finance scandal in ‘quarter to forget’
“This has turned out to be something of a quarter to forget for Lloyds” – Richard Hunter, Interactive Investor
Bank of Scotland owner Lloyds Banking Group has reported a sharp drop in third-quarter profits as it felt the impact of an extra £800 million charge to compensate customers unfairly sold a car loan.
The banking giant, which also owns Scottish Widows, reported a pre-tax profit of £1.2 billion for the period between July and September - a 36 per cent decline on a year earlier. However, the result came in above the £1bn profit that most analysts were expecting and the impact on Lloyds’ share price was minimal.
The group’s latest results take into account it setting aside more money to cover potential costs related to the UK regulator’s motor finance compensation scheme. It took an additional £800m charge over the third quarter, bringing its total compensation bill to an estimated £1.95bn.
The Financial Conduct Authority (FCA) published proposals for a redress scheme after finding that payouts are due on around 14 million unfair car finance deals. It calculated that each payout could average at about £700 per deal.
Lloyds’ finance chief William Chalmers said the bank was “concerned” about the watchdog’s proposed scheme which it thinks is “disproportionate” to the actual level of harm caused to consumers.
“We do think the proposals, as they stand right now, risk producing an anomalous outcome for customers, which is not a sensible place to be,” he said.
Chalmers said the bank was hoping to have a “constructive dialogue” with the FCA and refused to say whether or not it could proceed with a potential legal challenge.
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Lloyds said its lending has grown over 2025, including mortgages, credit cards and motor finance - with loans increasing by 4 per cent across the first nine months of the year. Current account and savings account balances also grew this year as its customers spent less and saved more.
Chief executive Charlie Nunn said: “The group continues to perform well, demonstrating robust financial performance alongside strategic progress, including our recent acquisition of Schroders Personal Wealth.”
He said the bank benefited from income growth and cost savings “despite the impact of the additional motor finance charge in the third quarter”.
Nick Sherrard, managing director at Label Sessions, said: “Lloyds’ results paint a relatively positive picture, despite increased provisions for car finance mis-selling hitting profits. Much of the bank’s progress has been built on digital transformation, which has developed real momentum and is creating big upside potential.
“Short-term, the rising bill from car loan mis-selling remediation, and even fears of a windfall tax in the Budget, will temper the positivity around Lloyds. It remains the case, though, that this is a strong bank that could be in the right place to make bold moves and open up significant opportunities.”
Richard Hunter, head of markets at Interactive Investor, noted: “This has turned out to be something of a quarter to forget for Lloyds, with the additional motor finance redress provision playing havoc with many of its key metrics. Of course, the motor provision is not life-threatening and without that distraction the underlying progress remains strong.”
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