Lloyd's Q4 profit falls short of expectations amid lingering auto finance case concerns

Lloyds (LYG.US) has set aside an additional £700m ($8.82bn) to cover potential costs of regulatory investigations into its auto finance business, leading to a lower-than-expected fourth-quarter profit for the bank. Data showed Lloyds' pre-tax profit in the fourth quarter was £824m, below analysts' average estimate of £1.03bn. Despite the provision, the bank said it remained committed to delivering returns for shareholders and announced a £1.7bn share buyback while raising its dividend by 15 per cent. Lloyds' shares rose 3.82 per cent in pre-market trading. Lloyds, the UK's largest car loan provider, had already set aside £450m to cover potential compensation and other related costs. The Financial Conduct Authority is investigating whether borrowers were charged excessive fees for car loans. The UK's Supreme Court will hear the case in April, while the regulator will announce its next steps in May. Charlie Nunn, Lloyds' chief executive, said: “Clearly there remains a great deal of uncertainty around the final financial impact. In these circumstances, we welcome the Supreme Court's expedited hearing.” Bank of America analysts recently estimated that the UK banking industry could face costs of up to £38bn related to the case. Lloyds could be on the hook for £3bn, currently it has set aside £1.15bn. Earlier this week, Lloyds' shares fell after the court refused to allow the UK Treasury to defend the high-profile case. Nunn said the government's intervention was a "strong statement of intent" and the court's refusal had no bearing on Lloyds' terms. Nunn has been reforming Lloyds for three years, focusing on wealthy customers and interest-rate-free services. The bank is also reconfiguring its staffing in technology and other areas to support its shift to a digital bank and cut costs. William Chalmers, Lloyds' chief financial officer, said the bank expected "slower" economic growth this year but that customers would continue to repay loans. Lloyds had set aside £431m for bad debts in 2024, up from the previous year but below analysts' expectations.