Cash call for subprime lender hit by FCA orders

Troubled subprime lender Provident Financial has announced a £331 million cash call after being ordered to pay almost £171m in fines and compensation over mis-selling at its Vanquis Bank arm.

The Financial Conduct Authority (FCA) fined credit card lender Vanquis £2m and ordered it to pay £168.8m compensation for failing to disclose charges of its repayment option plan (ROP).

Provident announced the rights issue to boost its bruised balance sheet and cover the cost of the Vanquis settlement, as well as an expected £20m hit from an ongoing investigation into its car financing arm, Moneybarn, over affordability checks.

The rights issue will raise £300m after £31m in expenses.

Full-year results released alongside the settlement showed the hit and Moneybarn penalty pushed Provident into the red in 2017, leaving it nursing losses of £123m against profits of £343.9m in 2016.

With this stripped out, underlying profits were still hammered last year, down 67% at £109.1m, as the group was also knocked by disruption after it launched a new home credit model in July with the aim of moving from self-employed door-to-door agents to full-time customer experience managers.

Provident said the switchover was “poorly executed”.

However, shares surged 34% in early trading having tumbled on Monday ahead of the expected rights issue.

On the ROP misselling, the FCA said Vanquis had committed “very serious breaches”.

Mark Steward, director of enforcement, said: “Vanquis failed to make sure customers were informed about the full cost of the ROP when it was offered to customers.”