Provident Financial boss quits as the lender cancels dividends for this year

Lender sees shares plummet as it deals with losses between £80m to £120m this year

Provident Financial lends money to those rejected by mainstream banks (PA)

Provident Financial shares plummeted on Tuesday after it announced its chief executive Peter Crook is leaving and that it is unlikely to pay a dividend this year as the British subprime lender issued its second profit warning in two months.

The company has been struggling to reorganise its door-to-door lending business, warning in June that its profit would fall as it struggles to switch from using self-employed debt collection agents to employees on its payroll.

Provident Financial, which provides credit to people who do not meet the loan criteria of mainstream banks, billed the reorganisation as a way to create a more efficient and effective home credit business. But it has failed to recruit enough agents, causing it to fall behind in its debt collections.

Even before Tuesday’s profit warning, the company had become the target of short-selling by hedge funds.

Shares out on loan rose last week, with investors shorting 4,964,626 shares by Friday, according to data from FIS’ Astec Analytics, signalling that some investors believed the price would fall. Among the investors shorting the stock are hedge fund managers AQR Capital Management, Lansdowne Partners and Systematica Investments, showed filings from the British regulator.

Its shares have fallen 70 per cent since the start of June.

The firm said on Tuesday the rate of progress being made in the turnaround of the home credit unit is “too weak” and that the business is now falling a long way short of achieving its objectives.

The rate at which the unit is collecting outstanding debt has fallen to 57 per cent from 90 per cent in 2016, with weekly sales about £9m lower the company said, warning the business faced a loss this year of £80m to £120m.

“In response, a thorough and rapid review of home credit’s performance is underway to secure the turnaround of the business,” the company said.

Manjit Wolstenholme will assume the role of executive chairman as Crook departs.

“Protecting the group’s capital base through withdrawing the interim dividend and in all likelihood the full-year dividend is the appropriate response,” Wolstenholme said.

Provident also said the UK’s financial watchdog was investigating a product issued by the lender’s Vanquis Bank unit which provides customers with a repayment option plan (ROP) for their debts.

The ROP gives customers the option to, for example, have a break from monthly debt repayments, but comes with a fee. It currently adds £70m a year to gross revenues, before impairment and costs, Provident said.

Vanquis Bank agreed with the Financial Conduct Authority to voluntarily suspend all new sales of the ROP last year and to contact costumers, the company said.

The bank also agreed with the Prudential Regulation Authority, pending the outcome of the FCA investigation, not to pay dividends to or enter into some transactions with its parent Provident without the regulator’s consent.

Provident’s operations consist of Vanquis Bank, consumer credit division with brands including Satsuma, and Moneybarn – a provider of vehicle loans.

“While the share correction was making us warm to Provident, this quadruple whammy (another profit warning, no dividend, FCA investigation and CEO departure) lead us to now believe that the shares are not investable until greater clarity is received, which may not be until next year at the earliest,” analysts at RBC said.

Reuters