US-owned broker KBW has upped its forecasts for the liability of three of the main listed companies facing big bills: Lloyds Banking Group PLC (LSE:LLOY), Close Brothers Group PLC (LSE:CBG) and Vanquis Banking Group PLC (LSE:VANQ).
The broker says that while refunding all commission would be very harsh for loans that were 'not expensive', it still reflects poorly on a bank like Lloyds that should have learnt the lessons from PPI
For Lloyds, including Jaguar Land Rover, KBW's potential compensation figure jumps to £4.2 billion from £2 billion, equivalent to 4p a share, spread across the years to 2026.
KBW believes however that the market is pricing in an excessive punishment – in Lloyds’ case the share price currently suggests a bill of around £10 billion.
“We still expect LLOY to announce a £2bn share buyback at full-year results (together with a small motor finance top-up of £0.5bn), which together with confident management commentary on the outlook should be taken positively by the market.
“LLOY is now our preferred UK bank and we reiterate Outperform, target price 65p.”
KBW now sees a total sector liability of around £28 billion, of which Close Bros faces a redress liability of £460 million, up from a previous forecast of £350 million.
In share price terms, that means an additional 70p a share - which KBW sees being taken across three years up to 2027.
KBW adds that the market seems to be implying a hit of £1 billion or else a deeply discounted capital raise, neither of which it sees as likely.
While keeping an 'outperform' rating, the target price comes down to 440p (from 620p) to reflect the higher motor finance estimates and cost of capital.
Finally, KBW sees Vanquis escaping relatively lightly even though motor finance accounts for 36% of its loans as 80% are sold by motor dealers accessing independent financial advisers rather than directly.
“In that context we estimated motor finance redress liability for Vanquis at £29 million (from zero) - equivalent to c.10p a share.”
Shares in Lloyds rose 1.7% to 55.3p, Close Bros by 1.9% to 237.2p and Vanquis by 4.6% to 48.9p.