Provident shares fall ‘catastrophic’ 70% amid profit warning, CEO departure, suspended dividend, FCA probe

Manjit Wolstenholme

Shares of sub-prime lender Provident Financial plummeted more than 70% after it issued a second profit warning in roughly two months and said its CEO Peter Crook would leave the company and its dividend would be suspended.

Bradford-based Provident Financial also said the UK’s Financial Conduct Authority (FCA) has launched an investigation into its Vanquis Bank business.

The fall in the firm’s share price wiped about £2 billion off its stock market value.

Provident Financial has been experiencing major problems with its move from using self-employed agents to directly employed debt collection agents called “customer experience managers.”

“Collections performance is currently running at 57% versus 90% in 2016 and sales at some £9 million per week lower than the comparative weeks in 2016,” said Provident Financial.

“The extent of this underperformance and the elongated period of time required to return the performance of the business to acceptable levels invalidates previous guidance.

“The pre-exceptional loss of the business is now likely to be in a range of between £80 million and £120 million.”

Provident said the trading performance of its Vanquis Bank, Moneybarn and Satsuma businesses remain in line with internal plans.

It said Vanquis Bank is co-operating with the investigation by the FCA investigation into Vanquis Bank’s Repayment Option Plan (ROP).

ROP currently contributes gross revenues, before impairment and costs, of approximately £70 million per annum.

“In view of the substantial deterioration in the trading performance of the home credit business, together with the uncertainty created by the FCA’s investigation at Vanquis Bank, the board has determined that the group must protect its capital base and financial flexibility by withdrawing the interim dividend declared on 25 July 2017 and indicate that a full-year dividend is unlikely,” said Provident.

“Protecting the highly valuable franchises of Vanquis Bank, Moneybarn and Satsuma is the board’s first priority whilst the turnaround of the home credit business is secured and the FCA’s investigation is concluded.

“The board remains strongly committed to the payment of future dividends and delivering long-term value to shareholders …

“In the circumstances, Peter Crook has decided to step down as chief executive with immediate effect.

“Manjit Wolstenholme will assume the role of executive chairman.”

Wolstenholme said: “I am very disappointed to have to announce the rapid deterioration in the outlook for the home credit business.

“Protecting the group’s capital base through withdrawing the interim dividend and in all likelihood the full-year dividend is the appropriate response to maintain the highly valuable franchises of Vanquis Bank, Moneybarn and Satsuma.

“My immediate priority is to lead the turnaround of the home credit business.

Neil Wilson, senior market analyst at ETX Capital, told Reuters: “A catastrophic share price drop in a subprime lender – it’s like the last ten years never happened.

“Is this a Northern Rock moment?

“Probably not – this is more about management failings than a market-wide issue: rivals are taking market share …