Time to rein in loan sharks
Epic is for once the right word to describe the crisis unfolding at provident Financial, which saw the doorstep lender’s shares plunge in the biggest one day fall ever to have been registered by a FTSE 100 listed company.
Some of Britain’s biggest city shareholders including top investors Neil Woodford and invesco, which between them own nearly half of the Bradford-based lender, got caught on the hop after the shares dived 66pc, wiping £1.7bn from the company’s value.
That’s a loss of £326m for Woodford and £359m for invesco, and savers who invest in their funds will suffer too. Other investors fared rather better. Hedge funds Lansdowne and AQR who short sold the stock some time ago are enjoying paper profits of more than around £130m.
What did they see at the 127-year-old business that others did not? Two years ago provident’s shares were changing hands at £35, making it worth £5.3bn. Four months ago the shares were still £32 each and today they are 589p.
With hindsight, the red light was flashing in June when peter crook – the now departed chief executive – issued provident’s first profit warning, claiming problems in the home credit collection business would slash consumer credit profits. He admitted that a restructuring of the business had left provi- dent without enough sales agents to collect debts but that the new ‘operating model’ would be up and running by July. investors will be asking whether crook gave as full a picture as he could.
By Tuesday, the picture had become crystal clear. The new collecting system and the software system behind it were a colossal disaster.
The result: losses of between £80m and £120m and July’s interim dividend is to be scrapped saving £200m. if that was not enough to spook the market, chairman Manjit Wolstenholme revealed the Financial conduct Authority is investigating one of its Repayment Option plan products provided by its Vanquis Bank subsidiary. Vanquis suspended sales of this ROp more than a year ago but this is the first time the market was told.
provident says the problems stem from switching its part-time army of 4,500 selfemployed agents, who used to go door-todoor collecting payments, to full-time customer experience managers.
Using this expression alone should have sent out alarm bells. Anyone describing debt collectors as ‘experience managers’ should have been shown the door.
But crook said door-to-door agents were outdated, and he wanted debt collectors to be more like grocery delivery men, arranging to see customers through a booking system arranged through an app.
He got his comeuppance. Not enough people wanted be full-time debt collectors while the software system did not work either, and is still not working properly.
The question for Mrs Wolstenholme is whether this can be made to work, and in time to stop provident’s capital base from being eroded.
There’s another, potentially much bigger, problem. As part of the FcA’s most recent review into soaring levels of consumer credit, the watchdog is investigating high- cost credit services, exactly the sort of loans that provident provides. Many of their loans charge an astonishing ApR. One loan for £100 charges an ApR of 1,557pc.
This cannot be right on moral grounds. Most of its 2.5m customers, many of whom do not qualify for standard bank loans and are categorised as ‘sub- prime’, are amongst the most vulnerable in society. They need protecting.
The FcA, which has had some success in controlling the more egregious payday lenders by setting a cap, is due to report back by spring next year. This inquiry needs speeding up and far tighter credit controls should be brought in.
Bonus for Daniels
THE news that Eric Daniels, chief executive of Lloyds Bank, is suing the Black Horse for hundreds of thousands of pounds in unpaid bonuses is breathtaking in its arrogance.
Daniels, along with his former colleague, Truett Tate, have filed legal claims in the High court relating to bonuses going back to 2012. They claim that despite hitting performance targets within the incentive scheme, parts of the bonus were not paid.
Daniels was in charge of Lloyds when it rescued HBOS – leading to its own emergency rescue – and also during the mis-selling of ppi payments.
Shareholders should be suing them instead for missing the performance they will have been hoping to see.