Lloyds Banking Group PLC (LSE:LLOY) faced a downgrade by Citigroup on Monday, which pointed to an ongoing overhang from the UK’s motor finance review.
An “overweight” rating was reiterated for the UK banking sector as a whole in the note from Citi, but Lloyds was nudged down from a “buy” to a “neutral”.
Lloyds last month unveiled a £3.32 billion profit for the first half, slightly ahead of market expectations, and ramped up its interim dividend by 15% to 1.06p per share.
However, Citi highlighted that Lloyds missed expectations on pre-provision profit and was the only bank to do so over the first half.
This was due to “higher operating lease depreciation” alongside motor finance redress which “now looks set to remain an overhang until May 2025”.
Britain’s Financial Conduct Authority (FCA) last month pushed back the time frame for publishing a review of the motor finance market from September to March.
Analysts have since warned of further uncertainty over the review, which covers the historic use of discretionary commission arrangements in the market, as a result.
While it remains unclear whether redress payments will be ordered, the FCA said this was now “more likely” in last month’s update.
“Buy” ratings were held for HSBC PLC, NatWest Group PLC (LSE:NWG) and Barclays PLC by Citi, while Standard Chartered PLC (LSE:STAN) remained “neutral”.
Lloyds fell 2.7% to 53.86p on Monday.