Lloyds Banking Group PLC (LSE:LLOY) was topping the FTSE 100 leaderboard on Tuesday after a report on the motor finance inquiry in the Financial Times that suggested HM Treasury is seeking permission to intervene in the forthcoming Supreme Court case.
The article said Chancellor Rachel Reeves is looking to ensure that "any redress is proportionate to the loss actually suffered and to avoid conferring a windfall" as there are concerns that compensation bills for banks and other lenders could be in the tens of billions.
Reeves fears this would "cause chaos" in the industry, including making it harder for consumers to get loans and putting the brakes on the UK car industry that already saw a drop in private sales last year, with four-fifths of new vehicles bought on finance.
Analyst Gary Greenwood at Shore Capital called it "a significant development for the industry that could reduce the potential liability (for which estimates of £30 billion-plus have been suggested by a number of commentators, including Moody’s) and so losses incurred".
He added that while the Supreme Court previously agreed to an April review of the Court of Appeal’s adverse judgement in respect of motor finance commissions, it was "by no means certain that the original decision will be overturned". He had expected the Supreme Court to merely seek to add clarity around the judgement and how it should be applied.
"As such, this news could have a positive impact on the share prices of those UK-listed banks and lenders with potential exposure to the issue," the analyst concluded.
Indeed it was, with Lloyds shares up 5% to 61p and fellow car lender Close Brothers Group PLC (LSE:CBG)surging over 18% to 290p.