Is the Lloyds share price recovery finally kicking off thanks to the Treasury?

The Lloyds Bank share price has gained almost as much so far in 2025 as it did over the whole of 2024, and it’s still only January.

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There’s no doubt that the Lloyds Banking Group (LSE: LLOY) share price has so far disappointed those who were expecting a bank stock recovery.

Over the course of 2024, Lloyds shares did climb 14%. But at the same time Barclays posted a whopping 70% gain. And NatWest Group managed an even bigger 80%. Lloyds really did look like the lame duck of the home-grown high street banks last year.

Created with Highcharts 11.4.3Lloyds Banking Group Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

Easing fears

A few things have held back the performance of Lloyds shares. It’s the UK’s biggest mortgage lender. And the slow building sector coupled with high interest rates doesn’t help when the economy’s barely limping along.

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But it’s also been blighted by the current mis-selling scandal facing car finance providers. It comes after previous mis-selling cases from big finance firms, and it has me shaking my head wondering whether they’ll ever learn.

Lloyds is heavily exposed to this one, and it’s already set aside £450m to cover any potential refunds and penalties. But some analysts watching the case have suggested the bank could be in it for up to £1.5bn. Some even think the total cost to the industry could be as high as £30bn.

Now things suddenly look a little bit brighter, and it’s all down to the UK treasury.

Reduce liabilities

In a submission to the Supreme Court ahead of a hearing on the case, chancellor Rachel Reeves has apparently urged leniency in terms of potential liabilities.

The letter says the outcome could “cause considerable economic harm and could impact the availability and cost of motor finance for consumers“. And it warned that “any remedy should be proportionate to the loss actually suffered by the consumer and avoid conferring a windfall“.

So just cover the costs and don’t impose anything punitive or excessive. I don’t think Lloyds shareholders could really have asked for more.

Since the news broke, the Lloyds share price has gained 5%, and it’s up 13% so far in 2025. That’s by market close on 22 January.

Close Brothers Group will also face the Supreme Court over the affair. And it did even better with a 25% jump in the same two days.

Not over yet

Lloyds isn’t out of the woods yet, and we have no idea how the court will respond to these Treasury missives. And we don’t even know how Lloyds’ board thinks it will go down, as it hasn’t said anything much about the whole thing.

Results for the 2024 full year are due on 20 February, and there’ll surely be something then — even if it’s only an updated figure for funds set aside. And the company hasn’t yet said anything in response to these latest moves.

What does it mean for investors? Well, I don’t think it should affect our long-term view of the bank. That surely will depend far more on economic developments in the next few years.

But it should perhaps ease the uncertainty we face this year. And it boosts my confidence a little in the future of the forecast 4.8% dividend yield. But there’s still some way to go.

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Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft has positions in Lloyds Banking Group Plc. The Motley Fool UK has recommended Barclays Plc and Lloyds Banking Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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