UK subprime lender loses two-thirds of value as CEO quits
Provident Financial, a British subprime lender, saw two-thirds of its market value wiped out Tuesday after the company issued another profit warning and revealed that its chief executive was leaving with immediate effect.
Provident Financial's share price closed down a whopping 66 percent at 5.90 pounds, meaning the company isn't even worth 1 billion pounds ($1.29 billion) anymore.
It may not be the biggest of companies but its stock market retreat stands to be one of the largest daily falls in the 33-year history of the FTSE 100 index of leading British shares. Provident is set to lose its place among British blue chip stocks at the next quarterly update.
Its stock market fall from grace — Provident's share price is down around 80 percent from a year ago — has conjured up memories of the dark days of the global financial crisis when issues with subprime lending took the banking sector and the global economy to the brink.
"A catastrophic share price drop in a subprime lender — it's like the last 10 years never happened," said Neil Wilson, senior market analyst at ETX Capital.
Tuesday's share price collapse came as Provident, which specializes in lending to individuals with low and variable incomes, revealed a massive deterioration in the outlook for its home credit business. And in further blows to its shareholders, Provident also scrapped its dividend and revealed that its credit card subsidiary, Vanquis Bank, was being investigated by Britain's regulator, the Financial Conduct Authority, over a repayment option plan, which has allowed customers to freeze repayments.
Chief executive Peter Crook, who backed plans to introduce the new operating model that is at the heart of the company's woes, has resigned. Earlier this year, the company announced plans to change the way it sold and collected money in the home credit division. Instead of using self-employed agents, Provident moved to a model that relied on so-called Customer Experience Managers, who were full-time employees of the company.
There have been major issues with the transition to the new model — some agents left earlier than expected while IT issues relating to customer orders have hobbled the transition.
In June, just ahead of the deployment of the new model, the company informed investors that the strategy wasn't going to plan and it issued a first profit warning. The latest update clearly shows that the company's hope of embedding the new model and restoring customer service and collections performance has yet to come to fruition.
"The rate of progress being made is too weak and the business is now falling a long way short of achieving these objectives," the company said Tuesday.
Collections and sales are both showing "substantial underperformance" with regard to the same period in 2016. Collections are running at just 57 percent against 90 percent last year while sales are some 9 million pounds a week weaker than a year ago. As a result, it now expects the consumer credit division to post a pre-exceptional loss of between 80 million pounds and 120 million pounds against an anticipated 60 million-pound profit before.
"The performance is abysmal and significantly worse than management ever could have imagined," said ETX's Wilson.
In response, the company has launched a "thorough and rapid review" of the home credit division's performance. Provident insists that the other areas of its business, including the Moneybarn car finance business and Satsuma, an online lending business, are still performing in line with expectations. As a result, the company is still expected to post a pretax profit this year of more than 100 million pounds. That though is way down on last year's 334 million-pound profit.
"My immediate priority is to lead the turnaround of the home credit business," said Manjit Wolstenholme, a former investment banker, who will assume the role of executive chairman following Crook's departure.