Lloyds banks record profits but sets aside £450m to cover car finance probe
Lloyds Banking Group has revealed record annual profits but also a provision of £450m to cover potential costs from a regulatory probe into car loan practices.
Britain’s biggest mortgage lender, whose brands include Bank of Scotland and Halifax, reported a pre-tax profit for 2023 of £7.5bn.
That was more than 50% up on the previous 12 months.
Lloyds credited higher interest rates, mostly a consequence of Bank of England action to tackle inflation, for the jump in income.
The profit figure came in above market expectations for £7.4bn.
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Lloyds rewarded shareholders with a final dividend of 1.84 pence per share and a share buyback of £2bn.
Shares were, however, down by almost 2% in response in early trading on the FTSE 100.
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The reaction was muted as Lloyds remained cautious on the outlook ahead amid stiff competition in the mortgage market.
Fixed rate deals, which shot up to 2008 financial crisis levels way above 6% last summer, have been coming down since the Bank of England paused its programme of interest rate hikes.
The prospects for rate cuts ahead helped spark a mortgage price war as 2024 began but that has lost steam in recent weeks over fears the Bank may wait until June to introduce any reduction.
The impact was clear to see in the Lloyds results release as its net interest margin – a key measure of underlying bank profitability – fell to 2.98% in the final three months of 2023 from 3.08% during the previous three months.
It predicted a level of 2.9% for 2024.
Lloyds set aside £308m to cover potential unpaid loans, well down on the £1.5bn sum seen last year.
The other £450m provision relates to the Financial Conduct Authority’s (FCA’s) investigation into whether people could be owed compensation for being charged too much for car loans.
The regulator is looking into historic so-called discretionary commission arrangements across the motor finance market – a practice that was banned in 2021.
Lloyds is exposed to the inquiry through its Black Horse brand.
Findings of misconduct in historic car loan financing could cost firms billions of pounds, estimates have suggested.
Pic: PA
A forecast by RBC has suggested that the car finance sector as a whole could face payouts of up to £16bn if the FCA investigation’s conclusions side in favour of consumers.
Matt Britzman, equity analyst at Hargreaves Lansdown, commented: “The £450m provision was less than some had feared but there will be question marks around how Lloyds has come to that figure.
“Lloyds has been honest in saying the outcome of the review is largely unknown. What we do know is that Lloyds is one of the more exposed banks should the FCA deem there was misconduct and customer loss.”
Lloyds was the last of the major UK lenders to report on their progress over 2023.
NatWest revealed last week a 20% increase in profits despite its troubles behind the scenes, including the fallout from the Nigel Farage debanking scandal that forced out the then chief executive Dame Alison Rose.
Barclays‘ earnings were hit by a weaker performance from its investment banking arm.
It responded to investor concerns over its reliance on that division by announcing a shake-up of its operations.
On Wednesday, HSBC shares fell sharply after its record annual profits were dented by its exposure to the troubled Chinese market.
Business
Vivergo: How US-UK trade deal could bring about collapse of huge renewable energy plant in Hull
The smell of yeast still hangs in the air at the Vivergo plant in Hull but the machines have fallen quiet.
More than 100 lorries usually pass through here each day, carrying 3,000 tonnes of wheat. It is milled, fermented and distilled. The final product is bioethanol, a renewable fuel that is then blended into E10 petrol.
This is a vast operation. It took several years to build, with considerable investment, but it is on the verge of closing down. Management and staff are holding out for a last-minute reprieve from the government but time is running out.
It’s been a turbulent journey. The plant was already being annihilated by US rivals, losing about £3m a month. Vivergo and Ensus, based in Teesside, blamed regulations that enable US companies to earn double subsidies.
They were pushing for regulatory change but then a killer blow: The US-UK trade deal, which allows 1.4 billion litres of American ethanol into the UK tariff-free (down from 19%).
“We’ve effectively given the whole of the UK market to the US producers,” said Ben Hackett, managing director at Vivergo.
“If we were to have the same support that the US industry has, if we could use genetically modified crops, we wouldn’t need that tariff. We would be able to compete. If we had the same energy costs. We wouldn’t need those tariffs.”
The government has the weekend to come up with a plan that could keep the business running. If it fails, Vivergo will begin issuing redundancy notices to its 160 staff.
Ben Hackett
It’s a devastating prospect for workers, many of them live in Hull and are nervous about alternative opportunities in the area.
Mike Walsh, a logistics manager who has been working at the plant for 14 years, said: “It’s not a great place to be at the moment. It’s a very well paid, very high-skilled role and they’ve (Vivergo) given everybody an opportunity in an area that doesn’t pay that well…. The jobs market isn’t as good as what people would like. So it does impact the local economy.”
He called on the government to “help us, save us, give this industry a future”.
His colleague Claire Wood, lead productions engineer, said: “I moved here after a career in oil and gas for 10 years, partly because I want to be part of the transition to renewable fuels. I can see so much potential here and it’s absolutely devastating to know that this place might be closed very, very shortly and that all that potential just goes away.”
Thousands more could be affected. Haulage companies may have to lay off truck drivers and farmers could also suffer a blow.
Vivergo makes bioethanol using wheat. That wheat is bought from farms from Yorkshire and Lincolnshire.
Claire Wood
The National Farmers Union has sounded the alarm, saying: “Biofuels are extremely important for the crops sector, and their domestic demand of up to two million tonnes can be very important to balance supply and demand and to produce up to one million tonnes of animal feed as a by-product.”
Another bioproduct is carbon dioxide. The gas can be captured and used to put the fizz in drinks or injected into packaging to preserve food.
If Vivergo and Ensus were to go, Britain would lose as much as 80% of its output of carbon dioxide. Supplies are already tight across Europe, meaning this decision could compound shortages across a range of sectors, from meat-packing to healthcare.
The industry is calling on the government to help. Vivergo says it needs temporary financial support but that the government must create a regulatory and commercial environment in which it can thrive.
It says rules that award double subsidies to companies that use waste product in their bioethanol must be changed. At present, these rules are being used by US companies that make ethanol from Uldr – a by-product of processing corn. They argue this is not a genuine waste product.
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Another option is to grow the market. Industry leaders are calling on ministers to increase the mandated renewable fuel content in petrol from 10% to 15% and for an expansion into aviation fuels. That would allow British companies to carve out a space.
The government has been locked in talks with the company since June.
It said: “We will continue to take proactive steps to address the long-standing challenges it faces and remain committed to a way forward that protects supply chains, jobs and livelihoods.”
However, the time for talking is almost over.
Mr Hackett said he had no idea how the government would respond but he was firm with his stance, saying: “In times of global uncertainty, losing that energy certainty and supply from the UK is a problem.
“I think what they’re missing out on is the future growth agenda. We’re the foundation on which the green industrial strategy can be built. We make bioethanol that today decarbonises transport. Tomorrow it will decarbonise marine. It will decarbonise aviation.”
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