Lloyds Bank Share Price (LLOY) Jumps To New High, JP Morgan Upgrades on Court Ruling

Lloyds Banking Group shares (LON:LLOY) have experienced a notable boost following a UK Supreme Court ruling on motor finance commissions, prompting JPMorgan to upgrade its rating on the stock. The favourable legal outcome significantly reduces the potential financial liabilities for the bank, leading analysts to view its current valuation as more attractive.

Shares in Lloyds jumped 7.25% this morning, hitting a new high at 82p, as a strong year for the stock continues.

JPMorgan upgraded Lloyds to Neutral from Underweight, simultaneously increasing its price target to 85p from 79p. The upgrade hinges on the Supreme Court's decision, which overturned a previous ruling that could have resulted in substantial compensation claims against lenders related to undisclosed commissions in car finance agreements. JPMorgan analysts believe the existing provisions held by Lloyds are now sufficient to cover potential liabilities, effectively removing a significant overhang on the investment thesis.

The Financial Conduct Authority (FCA) is now set to consult on a redress scheme for consumers potentially overcharged in car finance deals. While compensation may still be required, the FCA estimates the total cost at between £9 billion and £18 billion, significantly less than earlier estimates surpassing £30 billion. The consultation is expected to start by October 2025, with compensation possibly beginning in 2026.

Lloyds has stated it will keep its £1.2 billion provision for motor finance claims under review, but does not expect material changes. This cautious approach underscores the ongoing uncertainty surrounding the final compensation figures.

Recent financial results paint a positive picture for Lloyds. The bank boasts a market capitalization of £44.90 billion, with trailing-12-month revenue of £17.67 billion and net income of £4.05 billion. Its forward P/E ratio stands at a reasonable 8.8, complemented by a dividend yield of 4.40% (ex-dividend date: July 31, 2025).

First half statutory profit after tax increased 4% year-over-year to £2.5 billion, bolstered by improved net interest income and other income sources.

The reduction in litigation risk has boosted investor confidence in Lloyds' outlook. The market has welcomed the clarity provided by the Supreme Court decision, which is expected to underpin improved sentiment towards the bank.

JPMorgan's upgrade reflects a growing consensus that the worst-case scenario for Lloyds has been averted, potentially unlocking further upside for the stock. “Litigation uncertainty was the key challenge to the investment thesis,” JPMorgan analysts noted, highlighting the significance of the recent legal victory.