Provident Financial sees 80% shares recovery
Shares in troubled Provident Financial soared by more than 80%, yesterday before paring back slightly, after the British sub-prime lender announced a £331m (€376m) share sale that will increase its capital by more than a third.
The rights issue is the first sign of a long-awaited turnaround in the company which lost 70% of its value last year when it swung into the red after two profit warnings, that prompted the departure of chief executive Peter Crook and the suspension of its dividend. It has also been under investigation bythe UK’s financial watchdog.
Provident said the rights issue was backed by its two largest shareholders Invesco Asset Management and Woodford Investment Management, and would meet the costs of resolving a probe by the Financial Conduct Authority into its Vanquis Bank unit.
It would also secure the company’s capital position, maintain its “investment grade rating” and re-establish normal access to funding from the bank and debt capital markets.
The lender said it had reached a settlement with the authority resulting in a fine of £2m and compensation payments of £127.1m and other estimated costs of £43m.
“In 2018, the group will continue to rebuild trust with our customers, regulators, shareholders and employees,” chief executive Malcolm Le May said.
Provident has been trying to reorganise a business that has traditionally relied on self-employed agents offering high-interest loans of £100 to £1,000 and collecting repayments through weekly household visits.
However, it had been unable to recruit enough people for its plan to replace external agents with direct employees.
Provident also said that Moneybarn, its car and van financing arm, continued to co-operate with the regulator in a separate investigation, which it estimated could eventually cost the company £20m. The investigation is focused on how Moneybarn assesses if customers can afford to take on credit and how it deals with borrowers who cannot repay loans.
Provident, which was established in 1880 and provided loans through the Wall Street crash of 1929 and both World Wars, also reported a pre-tax loss of £123m for 2017, compared with a pre-tax profit of £343.9m a year earlier.
The group targets a return on assets of about 10% after the rights issue, its home credit unit returning to profit in 2019, and a progressive dividend policy.
