Lloyds Banking Group (LSE:LLOY) shares are in an interesting position right now. The stock’s done well in 2024, climbing around 14%. 

Going into 2025 however, the threat of potential liability concerning car loans has been weighing on the Lloyds share price. So how should investors think about the stock in terms of valuation?

Bank stocks in 2024

In general, UK banks have done well relative to the rest of the FTSE 100 in 2024. Barclays has seen its share price climb almost 70% since the start of the year and NatWest‘s up more than 80%.

Compared to this, a 14% gain for Lloyds shares doesn’t seem so impressive. And a look at the valuation multiples at which the stocks have been trading gives a good idea about why. 

Lloyds vs. Barclays vs. NatWest P/B multiple 2024

Created at TradingView

All of the banks trade at higher price-to-book (P/B) multiples than they did at the start of the year. But both Barclays and NatWest have seen much greater expansion than Lloyds. 

This is a sign investors feel less positive about Lloyds compared to other UK banks now than they did back in January. And it’s not that difficult to see why. 

Car loans

An investigation into practices around selling car loans looks set to generate substantial liabilities for lenders. And Lloyds is much more exposed to this industry than Barclays or NatWest. 

The scale of the threat isn’t currently clear, but the highest estimates are around £3.9bn. One way of looking at this is in the context of the dividends the bank pays its shareholders.

Banking’s a cyclical industry, so shareholder distributions vary from year to year. But over the last decade, Lloyds has returned a total of £13.9bn. 

Lloyds Banking Group dividends paid to shareholders 2015-24

Created at TradingView

In this context, a £3.9bn fine looks like a lot – it’s more than 25% of the dividends the company’s paid out in the last decade. But the question is whether the current share price already factors this in. 

Is the stock a bargain?

Lloyds currently has a market-cap of around £33bn. So if investors receive £10bn in dividends (the amount from the last 10 years minus the fine) in the next decade, that would imply an average yield of around 3%.

That doesn’t look like an obvious bargain. But I’ve made a couple of pessimistic assumptions that are worth noting to try and leave the kind of margin of safety I look for in an investment.

One is I’m taking a high estimate for the size of the potential car loan liability. It’s certainly possible that the eventual outcome could be better than this for Lloyds.

Another is I’m assuming the next decade will be roughly like the previous one in terms of dividends. Investors might think higher interest rates should result in better returns from banks. 

2025 outlook

Given the car loan uncertainty, I don’t see Lloyds shares as an obvious buying opportunity to contemplate. But I also don’t think investors who own the stock should necessarily be in a rush to consider selling. 

Despite lagging its peers in 2024, the Lloyds share price has still managed a 14% gain. I think it’s roughly fairly valued where it is at around 55p.