Lloyds Banking Group PLC (LSE:LLOY) may be forced to cut in half a £2 billion share buyback next year following last week's adverse Court of Appeal decision on motor finance.
The ruling, which found motor dealers had failed to act in the best interest of customers, has led analysts at RBC Capital to revise upward their financial exposure estimates for five banks by almost £1.3 billion, with the black horse bank bearing the brunt of the increased liability.
Its bill is estimated by the abacus rattlers to be an eye-watering £3.2 billion, up from £2.5 billion previously.
Santander UK will also feel significant effects, with its costs increasing to £1.4 billion from £1.1 billion.
The Bank of Ireland, Barclays, and Close Brothers Group face more modest increases in exposure, amounting to €950 million (previously €750 million), £400 million (previously £360 million), and £320 million (previously £250 million), respectively.
The aggregate rise in financial exposure comes as banks are forced to reconsider their risk models in light of the Court's ruling.
Lloyds is particularly vulnerable given its large motor finance book, which underpins the bulk of the sector's liabilities.
RBC's analysis suggests that the revised estimates have implications for the capital strategies of these banks.
Close Brothers Group, for example, is expected to slow down its motor book lending by 10% in the coming years to preserve capital, while it aims to re-start dividend payments by 2026.
This latest development is expected to delay the Financial Conduct Authority's review into discretionary commissions in motor finance, which was initially slated for May 2025.
The Court of Appeal's judgement has raised questions over whether these regulations could be extended to other types of finance and whether banks would be compelled to return all commissions to borrowers.
Analysts have highlighted that uncertainty will persist until a Supreme Court appeal is heard, and any FCA response is announced, likely extending the regulatory limbo into late next year.
Barclays appears to be the least affected among the major players, with its estimated impact remaining relatively low at £400 million.