Must read: Lloyds Bank, HSBC, Fed minutes

GLOBAL MARKETS

The FTSE 100 has opened lower, dragged down by banking stocks such as HSBC Holdings (LSE:HSBA) and Lloyds Banking Group (LSE:LLOY). The CAC 40 is trading higher, with President Emmanuel Macron expected to name a new prime minister by Friday evening to replace outgoing Sebastien Lecornu in an attempt to fend off further political turmoil in France.

Overnight, the Nikkei jumped after shares in Softbank logged a double-digit percentage gain thanks to a mega AI and robotics deal with ABB.

• Our Services: SIPP Account | Stocks & Shares ISA | See all Investment Accounts

US futures are pointing modestly higher after stocks closed Wednesday in the green with the S&P 500 and the Nasdaq at record highs boosted by AI large caps. However, the latest Federal Open Market Committee(FOMC) minutes revealed concerns about the labour market and inflation as well as a dot plot that suggests that Federal Reserve governors are divided. Although the speed and timing of upcoming rate cuts is uncertain, the central bank is maintaining its dovish tilt with the possibility of two more rate cuts in 2025.

LLOYDS

Lloyds has warned ‘an additional provision is likely’ to cover the cost of compensating motor finance customers and it is likely to be ‘material’. The lender already set aside £1.15 billion but it looks like that figure will rise.

Lloyds was a significant player in the motor finance mis-selling scandal alongside other lenders like Banco Santander SA (LSE:BNC), Barclays (LSE:BARC) and Close Brothers Group (LSE:CBG). Earlier this week, shares in Lloyds rose after the Financial Conduct Authority (FCA) said the industry would need to pay out £11 billion, which was better than expected.

• Relief for Lloyds Bank and others after car finance decision
• eyeQ: the only UK bank share that offers an edge

However, today’s update from Lloyds raises concerns that the lender is still likely to suffer a significant financial hit with some analysts pencilling in a 30% higher figure at around £1.5 billion. Developments from the mis-selling scandal will continue to be an overhang for the bank and other implicated lenders in the sector. The next catalyst for the stock could be in a fortnight when Lloyds is likely to provide more information and clarity as part of the release of its third-quarter results.

Shares in Lloyds have fallen sharply towards the bottom of the FTSE 100 this morning, shedding over 2% reflecting the higher-than-expected financial hit. However, the stock is still up over 50% year-to-date thanks to Lloyds’ strong financial performance, robust net interest income thanks to the higher for longer interest rate environment, and increased returns to shareholders via dividends and share buybacks.

HSBC

HSBC said it is privatising Hong Kong’s Hang Seng bank in a $13.63 billion (£10.2 billion) deal to buy out the 36.5% of shares it doesn’t already own, held by minority investors. HSBC offered a 30% premium to Hang Seng’s closing price on Wednesday, sending shares in the target up around 26%.

HSBC said it wouldn’t carry out any share buybacks over the next three quarters to fund the deal, sending shares sharply lower. Share buybacks have been a big part of investors’ rationale behind holding shares in HSBC after the bank paid out $11 billion to shareholders last year.

Hang Seng bank has been caught up in China’s property crisis, pushing up its bad debts. HSBC, meanwhile, has been carrying out a major global restructuring, cutting costs, pulling away from investment banking, exiting certain markets and focusing more on wealth management and on Hong Kong.