Lloyds Banking Group PLC (LSE:LLOY) was unlikely to be the target of a warning from the UK’s financial watchdog telling motor finance firms to hold back cash for a probe into the sector.
That’s according to KBW analysts, which highlighted Lloyds’ £450 million provision, laid out in February's full-year results.
The Financial Conduct Authority (FCA) issued the warning in a letter on Friday morning.
Many firms have struggled to pass on relevant data relating to the investigation, the FCA said, which centres on the historic use of so-called discretionary payments that saw brokers and dealers raise consumers’ interest rates on car finance.
“We suspect that this primarily relates to smaller finance companies and or subsidiaries of overseas banks,” KBW noted in response.
Close Brothers Group PLC (LSE:CBG) was probably not the target of the letter either, analysts continued, given the firm cancelled its dividend over the probe.
“It is hard to argue that either are not focused on ensuring that they have adequate financial resources,” KBW said, discussing Lloyds and Close Brothers.
That said, “the fact the FCA has had to write the letters feels a little ominous,” analysts added.
“We continue to believe that the motor finance review will result in significant liability for a number of UK banks.”
KBW estimated Lloyds to be pricing in a total liability of £2 billion, with Close Brothers’ potential hit at £350 million. Both were kept at ‘outperform’ ratings.