Provident Financial sees nearly £ 1.7 billion disappear from market value | Financial foresight

Provident Financial lost two-thirds of its market value in one day after the home-based lender was hit with a “quadruple whammy” of bodily blows.

The company, which specializes in loans to people in financial difficulty, issued its second profit warning in two months, separated from its chief executive and canceled a dividend for shareholders.

He also announced that he was facing a regulatory investigation from the city’s watchdog, the Financial Conduct Authority, into the sale of a product that allowed people to freeze their credit card debt. .

The perfect storm of bad news for investors caused the risky lender’s shares to fall by more than 66% from more than £ 17 to 589.5 pence, wiping almost £ 1.7bn from its market value .

Provident Financial share price

Provident’s rapid deterioration in performance, less than two years after entering the FTSE 100, comes after a botched attempt to overhaul its 130-year-old business model by downsizing and increasing its use of technology.

Its chief executive, Peter Crook, who earned £ 6.3million in salary and bonuses last year, resigned with immediate effect, with Manjit Wolstenholme becoming executive chairman.

Provident, which lowered its consumer credit division’s forecast to a profit of £ 60million two months ago, now expects the company to take losses of up to £ 120million during the current fiscal year.

The company will cancel its interim dividend – and ‘in all likelihood’ the full-year payment in an attempt to conserve cash, which analysts say could save around £ 200million.

Provident grew rapidly in the years after the financial crisis, stepping in to offer credit to people who couldn’t get it from banks because they were more wary of risky loans.

Interest rates on these loans are generally high, with £ 100 borrowed from Provident over 13 weeks resulting in a repayment of £ 143. The division has loaned around £ 500million.

Earlier this year, it announced changes to its traditional business model of sending independent sales agents door to door, offering loans and collecting debts.

In an effort to embrace automation, Crook has announced plans to cut its 4,500 sales agents.

He replaced them with 2,500 full-time “customer experience managers” who would be connected to headquarters via iPads, their time being managed more efficiently through analytics software.

The result has been a drop in its debt collection rates from 90% last year to just 57%.

Peel Hunt analyst Stuart Duncan said: “They took a centuries-old model and practically broke it.”

In a statement to the exchange, Provident said the software “exhibited some early problems.”

Wolstenholme said this was in part due to the poor schedules and routes used, meaning staff ended up going when borrowers were not at home.

She added that some of the “customer experience managers” were underperforming, but it was too early to say how. “I have to understand why the hell this is happening,” she said.

She insisted that Provident would not abandon the strategy of employing full-time staff, which she said would make it easier to comply with the regulations in the long run. But she admitted that the software used to run that staff might need to be “tweaked.”

“We seem to have lost something along the way by trying to be a little too automated about it,” she added. “We had a good deal and we need to make sure to go back.”

The company also admitted that its Vanquis Bank division was the subject of a Financial Conduct Authority investigation into the sale of repayment option plans (ROPs), a product that helps people freeze credit card debt. credit.

The investigation covers sales made between April 2014 and April 2016. Provident has agreed to suspend the sale of ROP, which had turnover of £ 70 million per year.

RBC Capital Markets analysts called the series of negative announcements a “quadruple whammy” as Provident’s share price fell.

Peel Hunt’s Stuart Duncan said the company did not appear to be in imminent danger of collapse, but warned it could run into problems if Vanquis Bank customers start withdrawing deposits.

“If they read that Provident or Vanquis is in trouble, it will be interesting to see how the deposit base performs over the next few years.”

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