When trading begins on Monday (4 August), I suspect the Lloyds Banking Group (LSE:LLOY) share price will rise following today’s (1 August) judgement by the Supreme Court. After the market closed, it rejected (in part) previous rulings made by the Court of Appeal that it was unlawful for car dealers to receive a commission from the lender unless it was properly disclosed and agreed with the customer.
Previously, we’ve seen how sensitive investors can be to the issue. On 25 October 2024, the bank’s shares fell 7% after the original ruling was made.
Possible implications
As an estimate of the potential cost, Lloyds has made a provision of £1.2bn in its accounts. But I’ve seen some predictions suggesting that it could cost up to £3.9bn. After the decision by the Supreme Court, I suspect it’s going to be at the lower end of estimates. However, lawyers will be carefully examining the finer details of the judgement to understand the full implications.
But whatever the final figure, I suspect it’s going to have little impact on the bank. At 30 June, it had £919bn of assets on its balance sheet, including £64bn of cash.
Personally, I think there are bigger issues for shareholders to worry about.
Other concerns
For example, there’s been talk recently that, later this year, the Chancellor might be tempted to look to the country’s financial institutions to help plug a hole in the nation’s finances and introduce a windfall tax.
And then there’s the problem of the wider economy. Lloyds earns nearly all its income in the UK. It’s believed that it has a 20% share of the mortgage market. Domestic economic weakness could increase the risk of loan defaults. Any loss of confidence here and earnings are likely to dip.
Impressive results
But the bank’s most recent results — for the six months ended 30 June 2025 — show that its financial performance is going in the right direction. Compared to the same period in 2024, net income was 6% higher, profit after tax was up 4%, and its net interest margin improved 10 basis points to 3.04%.
Over the six months, its loan book increased by 3% and customer deposits were 2% higher. Also, its return on tangible equity, a measure of how efficiently it’s using its assets, improved from 13.5% to 14.1%. It’s expecting this to be above 15% in 2026.
To satisfy income investors, it also announced a 15% increase in its interim dividend.
Not for me
However, I think there are better opportunities elsewhere in the sector.
The bank’s recent share price rally means – in my opinion – the stock’s become borderline expensive. Since August 2024, it’s risen 36%. And it’s not far off its 52-week high. This means it has the highest price-to-earnings ratio — and the second-largest price-to-book ratio — of all the FTSE 100’s banks.
| Stock | Price-to-earnings ratio | Price-to-book ratio | Dividend yield (%) |
|---|---|---|---|
| Lloyds Banking Group | 11.9 | 1.0 | 4.0 |
| NatWest Group | 8.6 | 1.1 | 4.1 |
| Barclays | 8.4 | 0.7 | 2.3 |
| Standard Chartered | 7.1 | 0.6 | 2.7 |
| HSBC | 6.3 | 0.8 | 5.4 |
| Average | 8.5 | 0.8 | 3.7 |
Source: London Stock Exchange at 30 July
It does better when it comes to dividends. But even though its present yield of 4% is above the Footsie average, a year ago it was around 5.7%.
I don’t think current shareholders need be too concerned about today’s Supreme Court ruling. In my opinion, the bank will be able to brush this off. But I would be worried that Lloyds shares are not the bargain they were a few months ago. For this reason, I don’t want to invest.
