Lloyds downgrades guidance as motor finance scandal bites

By Lawrence White

LONDON (Reuters) -Lloyds Banking Group's third-quarter profit fell by 36%, it said on Thursday, and it downgraded its performance guidance for the year to reflect an 800-million-pound ($1 billion) charge it had announced after a motor finance scandal.

The bank reported pretax profit for the July-September period of 1.17 billion pounds, broadly in line with the average of analysts' forecasts of 1 billion pounds.

Britain's biggest mortgage lender said the impact of compensating customers for the investigation meant it expected to make a return on tangible equity of around 12% this year, down from previous guidance of 13.5%.

Lloyds shares fell 0.4% in early trading, against a 0.3% gain in the benchmark FTSE 100 index. 

BANK HAILS STRONG QUARTER DESPITE MOTOR FINANCE

The motor finance scandal, which has forced the banking industry to set aside sums to compensate consumers who were mis-sold car financing deals, distracted from what was otherwise a reasonable quarter.

Underlying net interest income rose 6% in the first nine months versus the same 2024 period as the group's banking net interest margin rose.

The bank said it benefitted from returns from actions it took to insure against interest rate changes, known as a "structural hedge", which helped to offset a squeeze on mortgage margins.

"Strong capital generation was supported by income growth, cost discipline and strong asset quality in the first nine months of 2025, despite the impact of the additional motor finance charge in the third quarter," Lloyds CEO Charlie Nunn said.

Lloyds, one of Britain's biggest players in the motor finance industry, on October 13 said it had said aside an additional 800 million pounds after the Financial Conduct Authority's proposed redress scheme showed that more historical cases dating back to 2007 were likely to be eligible for compensation.

That brought the bank's total provisions for the scandal to 1.95 billion pounds.

Lloyds said it would challenge the regulator on its methodology, further prolonging the uncertainty around the final bill for what will be one of Britain's costliest consumer scandals for the banking industry.

WEALTH MANAGEMENT DRAWS INFLOWS

Lloyds said its pensions, insurance and wealth management business received 3.7 billion pounds of net new money in the first nine months of the year.

The British lender has bet big on growing what is referred to as the "mass affluent" sector, which it defines as customers making more than 100,000 pounds a year, as banks try to grow fee-based income to compensate for falling lending revenues.

Lloyds on October 9 said it would buy out Schroders' 49.9% stake in their UK wealth joint venture.

Big banks had traditionally shunned the mass affluent, leaving them to independent financial advisers in favour of going after the super-rich.

($1 = 0.7451 pounds)

(Reporting By Lawrence White; Editing by Tommy Reggiori Wilkes and Barbara Lewis)