Provident Financial: sub-prime carnage returns to the Footsie

Shares in Britain’s largest doorstep lender, Provident Financial, hit freefall this week after the FTSE 100 company admitted that it has been “struggling to collect debts”, said Oliver Gill in City AM. The Bradford-based lender’s stock plunged by as much as 72% in frenzied trading on Tuesday, wiping some £1.7bn off its value, as the troubled company warned of a possible £120m loss, cancelled the shareholder dividend, and then ousted its chief executive of ten years, Peter Crook.

The key figure agitating investors, said John Murray Brown in the FT, was Provident’s debt collection performance, which has fallen to 57% from 90% last year. The worsening economy may be partly to blame: “the Provvy” had carved out a lucrative niche lending to people with “difficult” credit histories. But the shortfall was exacerbated by a recent shake-up, which saw the firm’s 4,500 door-to-door collectors replaced with 2,500 new “customer experience managers”. Analysts have suggested that employees may no longer be bothering to chase overdue debts. The shock share plunge means a painful loss for the celebrated City investor Neil Woodford and his former employer Invesco, who together own 40% of the company. By contrast, hedge fund short-sellers, including AQR and Lansdowne Partners, are celebrating paper profits of around £135m.

“Is this a Northern Rock moment, a harbinger of doom,” asked Simon English in the London Evening Standard. On balance, “probably not”. The Provvy isn’t a “structurally significant lender, nor is it too-big-to-fail”. Nonetheless, “market old-timers were scratching their heads to recall when a FTSE 100 company ever fell so far, so fast”. Chairman Manjit Wolstenholme said that Provident, which still has “strong franchises” like Vanquis Bank (credit cards), Moneybarn (car loans) and Satsuma (online lending), could survive the catastrophe. Time will tell.