Lloyds faces profit dip amid motor finance court ruling expectations

In the UK, investors are closely watching the banking sector as the companies prepare to announce their half-year earnings. Lloyds Banking Group is set to release its results, kicking off the anticipation on Thursday, with NatWest Group following on Friday. This financial reporting takes place as lenders await a significant Supreme Court ruling regarding allegations of mis-selling in the motor finance sector, which could lead to large compensation payouts for customers. The judgment is expected to be delivered by the end of the month and may trigger an industry-wide redress scheme if mis-selling is confirmed. Lloyds has recently allocated £1.2 billion for potential costs stemming from this issue, primarily concerning its Black Horse car finance division, while Santander has reserved £295 million for legal costs and possible payouts. Analysts speculate on the ruling's implications, predicting a balanced outcome that could allow for a differentiated response, depending on each firm's level of wrongdoing. Despite this impending legal issue, Lloyds is projected to report a pre-tax profit slightly lower than last year's figures, primarily due to the ongoing market dynamics surrounding mortgage lending and customer savings activity amid economic uncertainty. NatWest, not directly affected by the same issues, is expected to show a profit increase compared to previous years, reflecting different operational strategies. The overall concern remains around how customer behavior in savings accounts has changed following recent events and economic conditions, as consumers tend to prefer easily accessible funds rather than locking them into accounts with higher returns.