British Banks Dodge a Legal BulletBritish Banks Dodge a Legal Bullet, but Still Face Billion-Pound Costs
Ion Jauregui – Analyst at ActivTrades
The UK Supreme Court relieves financial institutions from paying up to £44 billion over the car finance scandal. The FCA is preparing compensation plans that could cost up to £18 billion.
British banks have narrowly avoided a legal blow that threatened one of the largest payouts in their recent history. The UK Supreme Court ruled against applying broad compensations for inflated commissions on car finance agreements—a case that could have cost the sector up to £44 billion.
The decision was met with relief by the market. Shares of Close Brothers Group, Lloyds Banking Group, Barclays, and Bank of Ireland, all with direct or indirect exposure to auto loans, posted significant gains following the verdict.
However, the legal outcome does not mark the end of the matter. The Financial Conduct Authority (FCA) has announced it is working on a more limited compensation plan, which could result in payouts between £9 billion and £18 billion. Lloyds, one of the most affected entities, currently holds a provision of £1.2 billion, which its management believes will not need to be significantly increased.
Moody’s has rated the situation as credit negative for the UK banking sector, warning that despite the favorable ruling, regulatory and reputational risks remain.
Fundamental Analysis of Lloyds
Lloyds Banking Group (LSE: LLOY) remains a cornerstone of the UK financial system. Backed by strong capital ratios and a diversified portfolio, the bank has managed to weather regulatory and macroeconomic challenges in the post-Brexit, inflationary environment.
In its latest quarterly report, Lloyds posted a net profit of £1.63 billion, beating market expectations. The bank reported a ROTE of 15.3% and a CET1 ratio of 13.9%, providing a solid buffer to absorb potential future shocks. Additionally, the board announced an interim dividend of 0.92 pence per share, underscoring its commitment to shareholder returns despite ongoing uncertainties.
Technical Analysis of Lloyds (LSE: LLOY)
Lloyds has shown remarkable technical momentum so far this fiscal year. After hitting lows of £49.93 in January and forming a base that led to a golden cross of moving averages, the stock experienced a temporary dip to £57.88 following the announcement of new US tariffs.
Since then, the share price has advanced steadily, recently touching a new all-time high of £83.92 after forming a clear accumulation zone between May and July. This week, the stock decisively broke out of that range, entering what appears to be a potential “blue-sky” scenario, with no defined resistance levels above.
The move is supported by a bullish MACD crossover and increased trading volume, signaling momentum strength.
On the other hand, the RSI, currently at 61.98, indicates a slight moderation in the trend, especially after Tuesday's bearish candle, which could hint at a short-term correction toward the point of control (POC) at £75.20.
Key Indicators:
• MACD: Expanding, confirming strong upward momentum.
• RSI: At 61.98, suggesting moderate overbought conditions and possible pullback.
• Moving averages: Diverging, reinforcing the bullish trend structure.
Levels to Watch:
• Support: £77.50 – a break below this level could trigger a return to the accumulation zone.
• Resistance: With no clear ceiling in place, a continuation of the current breakout could see the stock approach the £90 mark.
In summary, while a short-term pullback is possible if regulatory pressure intensifies, Lloyds' technical outlook remains firmly bullish, supported by growing volume and strong momentum signals.
Dodging the Bullet
The Supreme Court ruling provides short-term relief for the UK banking sector, but the financial impact of the car finance scandal remains unresolved. As the FCA outlines its compensation plan, Lloyds stands out for its solid fundamentals and bullish technical setup—albeit with room for short-term corrections. The UK banking industry, although momentarily having dodged a bullet, still faces unresolved regulatory challenges and market scrutiny. The case has reignited the debate around sales practices in the UK auto finance market, a segment that until recently had avoided the level of oversight applied to other financial products.
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