Lloyds Banking Group PLC (LSE:LLOY) has been upgraded by RBC Capital Markets following the Supreme Court judgment on motor finance complaints at the end of last week, a long-awaited ruling that lifts a major cloud from the UK bank sector.
RBC lifted its rating to 'outperform' with a new price target of 95p after the decision, where the top UK court rejected claims that banks and car dealers were liable for “dishonest assistance” or “bribery” in how commissions were paid on car finance deals.
In practical terms, the court confirmed that dealers act in their own interests, not as agents of the bank or the customer, meaning Lloyds and peers will avoid the harshest compensation outcomes that some investors feared.
There is still a statutory route for consumer redress, under the Consumer Credit Act, a claim can succeed if a deal is “unfair”, such as when commission size or sales practices mislead customers.
The Financial Conduct Authority will launch a redress scheme later this year, but the sector’s potential compensation bill is now expected to be £9-18 billion, manageable compared with previous estimates.
RBC said Lloyds stands out for the strength of its deposit base, the resilience of its earnings, and an attractive dividend yield. In a softer regulatory and interest rate backdrop, it sees the stock as well-placed to outperform UK peers into 2026.
Lloyds said it was not yet adjusting its provisioning for the potential fallout, which stands at £1.2 billion, saying its initial assessment of the judgment and FCA redress scheme is that "if there is any change to the provision it is unlikely to be material in the context of the group".
Keefe, Bruyette & Woods reckons the shares are worth 93p, telling investors: "We recently upgraded the shares to outperform on the basis that profitability is likely to catch and surpass [NatWest] over 2026-28."
The KBW analysts said the FCA made "an extraordinary intervention", with the regulator's compensation estimate implying around £2 billion for Lloyds due to its 15% market share.
The higher FCA implied figure is £2.2 billion, or 3p a share, below KBW's previous estimate.
In afternoon trading, Lloyds was up 8% to 81.46p.