After Close Brothers’ shock scrapping of its dividend this morning, attention will turn to Lloyds Bank when it releases full-year results next week.
Mid-tier bank Close decided on the dividend cut due to the probe into car loan finance currently underway by financial regulator the FCA and what the cost of any redress might be.
Close Brothers said it was a case of it being prudent given the current uncertainty over the investigation, which is likely to report in September.
Lloyds is a much larger participant in the car loan market than Close Bros and potentially faces the biggest repercussions from the FCA probe, at least according to analysts at Royal Bank of Canada (TSX:RY).
RBC estimates Close Brothers' exposure at between £150-230m but Lloyds might be on the hook for £2bn, it says, a £1bn increase on its initial estimate.
Barclays and Santander are facing bills of £250m and £850m respectively, suggests RBC, with the impact on the sector overall anything between £6-16bn.
MoneySavingExpert’s Martin Lewis likened the issue to PPI and said a portal it recently set up for complaints received more than 262,000 hits in one day.
When it opened its enquiry the FCA stated the aim as "setting out to identify if the potential losses faced by consumers were caused by banks, motor finance brokers or both.”
Another consideration would be “the potential financial impact and materiality for the motor finance market as a whole.”
That might allow some wiggle room, suggested RBC, as "the price customers paid and the components of the deal are important to answering the question of what is a reasonable rate of interest and in assessing harm".
If there is any provision for the car loan enquiry in Lloyds' numbers next week that might go some way to providing an answer.
Shares in Lloyds were down 0.3% to 41.3p while Close Bros tumbled 24% to 301p.