Legal redress for the motor finance mis-selling could total £19 billion - double the amount original amount forecast by analysts at US group Citi.
The recent decision by the Court of Appeal to rule for the plaintiffs in three cases of undisclosed commission by motor finance lenders adds “significant uncertainty” on future payments said the bank.
“Our base case assumption for potential industry redress doubles to around £19bn, but there is now a significant possible range depending on the outcome of the Supreme Court ruling & FCA consultation,” Citi said in a note looking at the UK banks sector.
The American investment bank still has an overweight stance on the sector overall based on the strong set of third-quarter published recently by all of the major lenders, but its preferences reflect possible motor finance hits.
Lloyds Banking Group PLC (LSE:LLOY), reportedly the most exposed to motor finance, is its least favoured UK-focused bank with a 'neutral' rating followed by Barclays, which also is facing a substantial bill if the Court of Appeal ruling is upheld.
Natwest (buy) and HSBC (buy) are its favourites among the big four in that order.
Shares in Lloyds today were down 0.4% at 54.76p, while NatWest was down 1.4% at 387.4p.