News & Analysis

Too big to fail. FCA deals £91 million blow to Lloyds Bank, share price brushes it off.

Andrew Saks, Friday, 9 July 2021

The bottomless pit of money with which to pay regulatory fines that the Tier 1 banks have been relying on recently has been delved into once again.

This time, it is retail and commercial banking giant Lloyds Banking Group PLC that has had to roll up its sleeves and dig deep.

The bank has been fined by the Financial Conduct Authority (FCA) to the tune of £91 million for the dubious practice of sending letters to approximately 9 million customers between 2009 and 2017 which originated from the bank's insurance division, claiming that Lloyds Bank could offer 'competitive' quotations for policy renewals whilst offering lower quotes for the same products to new customers.

The period which the FCA has looked at is a time during which many Tier 1 banks had come under the spotlight with regulatory authorities, especially as the Western economies rebuilt themselves after the credit crunch and financial crisis that occurred in 2008 and 2009, and during which several major banks were fined unprecedented sums for their part in the manipulation of FX benchmark and LIBOR rates.

Lloyds Bank was never involved in any of those aspects because unlike most other Tier 1 British banks, it does not engage in investment banking and does not feature in the interbank FX market via a single dealer platform in the same way that counterparties such as HSBC and Barclays do, however Lloyds Bank has a relatively chequered history with regard to censuring by regulators for retail banking related faux pas, despite being the largest retail banking institution in the world.

Size, it seems, matters in this respect, and in this respect Lloyds Bank has demonstrated its commercial strength as the £91 million fine along with the negative connotations associated with it that have been reported publicly today have had seemingly no bearing whatsoever on share prices.

Quite the contrary, in fact. Lloyds Bank's share price is actually up quite substantially by 1.27% to 46.18p per share this morning compared to yesterday, however that requires a closer look because when looked at over the course of the last month, it is at its lowest level, therefore bad news has actually hit the price of Lloyds Bank's stock, it's just that yesterday's low appeared to give it the false impression of appreciation.

The reality is that no bank is too big or too wealthy for criticism these days, especially publicly listed giants like Lloyds Bank whose shareholders could well be account holders and will not take kindly to any regulatory malevolence or even worse, bilking of its loyal customers.

Looking at Lloyds Bank's share price on from an annual perspective, however, shows a different view and shares are up an astonishing 16.57% compared to this time last year despite a year of lockdowns, failed businesses owing loans that will never be satisfied, and that last month, the Bounce Back Loans that were issued with very scant underwriting to locked down businesses with no income became due for repayment, subsequent to which many declared insolvency.

It is therefore a period during which it would be expected for bank shares to be volatile, however Lloyds has been on the up, until the FCA's bombshell was dropped, and the fine was issued.

Despite this, however, the overall trend does reinforce the long held theory that big banks are too big to fail, as the overall direction has been a steady climb for several years despite economic conditions and the bank's behavior.

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