Banking sector in City receives £7bn stock gain from motor finance ruling
In a significant boost for the UK banking sector, the FTSE 100's 'Big Five' banks - Barclays, Standard Chartered, HSBC, Natwest, and Lloyds - added a combined £7.5bn to their market values by midday trading. This surge was largely due to a positive ruling by the Supreme Court on car finance commissions, which brought some much-needed legal certainty.
Barclays, in particular, saw its value increase by over £1bn, following a near two percent surge after setting aside £90m in provisions. The bank's growth was mirrored by Lloyds Banking Group, which added over £3.5bn to its market capitalization due to a seven percent surge, reaching a five-year high.
The Supreme Court found that claims against the lenders couldn't succeed based on fairness (equity) or tort (wrongful actions worthy of compensation). This ruling is broadly aligned with existing expectations, helping to alleviate fears that the final bill could be significantly higher.
The redress scheme, which will cover agreements going back to 2007, has sparked some fierce backlash, particularly from Stephen Haddrill, director general of the Finance & Leasing Association. Haddrill expressed a major concern about the redress scheme going back to 2007, stating that it is completely impractical due to the lack of details about contracts back then for both firms and customers.
The consultation procedure announced by the Financial Market Authority (FMA), which could cost between 9 billion and 18 billion pounds, affects banks supervised by the FMA, including credit and financial institutions subject to the FMA's banking and securities oversight.
Despite the general legal win for the banks, the Financial Conduct Authority confirmed it would consult on a redress scheme expected to cost between £9bn and £18bn. This decision has been met with mixed reactions, with Derren Nathan, head of equity research at Hargreaves Lansdown, stating that the ruling is a win for UK lenders.
The FTSE 350 bank index has been on an upward trend, gaining over 50% for the last year. This growth is evident in the performance of European banks, with HSBC reaching a record share price in July, and Barclays and Santander surpassing 2008 heights. Even banks with no exposure to the historical market enjoyed Monday's rally, with Natwest up over two percent and HSBC nearly one percent.
The FTSE 350 bank index has breezed past a recovery point and is currently up nearly 20% in the last six months, reaching 6,291. This recovery is partly due to the index's recovery from a stock hit earlier this year due to President Donald Trump's tariff onslaught.
Notable winners include Close Brothers, which soared over 20 percent on the back of its legal win, sealing an extra £120m. The group, which owns Black Horse, a leading vehicle finance provider, had set aside £1.2bn in provisions but enjoyed a boost after the Supreme Court upheld the appeal of two banks.
In conclusion, the Supreme Court's ruling on motor finance commissions has provided a much-needed boost to the UK banking sector. While the redress scheme has sparked some controversy, the overall sentiment remains positive, with the FTSE 350 bank index reaching new heights and the 'Big Five' banks experiencing significant value increases.
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