London Scottish Bank said yesterday it was getting out of the lending business to concentrate on debt collection as it revealed a £15.7m full-year loss.
The loss, including discontinued operations, for the year ending 31 October compared with a £15.7m profit a year earlier. The group loss was driven by a £22.4m deficit at its unsecured consumer lending business as revenue slumped and bad-loan impairments rose by 25 per cent to £32m.
The bank, whose customers are low-income households, said it would rebuild around its Robinson Way debt-collection business, whose profit rose by 57 per cent to £13.9m. Debt collection is "a growth market", the bank added.
London Scottish warned that its poor performance continued into this year with a £3.8m pre-tax loss in the first quarter. Unsecured consumer credit had a £1.9m loss and Robinson Way reversed £1m of gains it had already booked after poorer-than-expected collection performance. Costs for professional advice – expected to be £4m this year – also ate into earnings.
The bank announced it had agreed a plan with the Financial Services Authority to solve a £12.7m shortfall in its regulatory capital by reducing lending, raising finance, and paying no dividend until the problems are solved.
London Scottish announced on 31 December that it had fallen foul of new capital adequacy rules known as Basel II, and that the FSA was forcing it to seek a cash injection. Basel II requires banks to reflect their risks more accurately and to clear their own assessments with their regulator.
The Manchester-based bank said it had appointed Rothschild to seek offers for its factoring business, which helps businesses manage cash flow. It will also get out of its mortgage, secured-lending and consumer-credit businesses over time.
London Scottish employs more than 2,000 staff. It declined to comment on potential job losses from its restructuring plan.
The company said: "2008 is expected to be a year of change as the group restructures its lending divisions to refocus on Robinson Way. Financial performance is likely to be subdued until the group has completed its refocusing."
The bank's shares rose by 4.95 per cent to 26.5p, valuing the company at £38m. The shares had lost about 60 per cent of their value this year before yesterday.