Lloyds Banking Group PLC (LSE:LLOY) can still be one of the highest yield shares in its sector, even amidst the increased risk in its motor finance businesses, that’s according to analysts at Citibank.
Citi’s London-based analysts today issued a note, after updating their model for Lloyds, and said that Lloyds' motor finance business faces ‘redress risk’ which would potentially eat into cash that would otherwise be spent buying back Lloyds shares.
“Nonetheless, the all-in yield would still be around 17% for 2024, one of the highest in the sector, the NIM [net interest margin] looks set to inflect from 2Q24, and [the] valuation still screens as cheap,” Citi analyst Andrew Coombs said in the note.
Citi rates the FTSE 100 constituent banking share as a ‘buy’.
The UK’s Financial Conduct Authority (FCA) last week launched a probe into historic discretionary commissions in the UK’s motor finance market after finding customers continue to lose out.
After banning models linking brokers’ commission to interest rates charged to customers for motor finance in 2021, the FCA said many were now struggling to claim compensation. Despite a “high number of complaints”, the FCA said, “firms are rejecting most complaints because they consider that they have not acted unfairly”.
Lloyds was subsequently identified by City brokers as one of the most exposed to any potential fallout depending on the investigation's findings.
Analysts at Barclays have analysed the comments from the regulator and believe that it raises the possibility of compensation being paid the banks. While uncertainty is “high”, it suggests a potential provision range of £0.5-£1.0 billion for Lloyds.