Provident Financial’s (PFG) troubles seem more deep-rooted than first thought. Customer collections and sales at its home credit business are taking longer than anticipated to recover from the disruption caused by its operational changes. Management expects the business to incur a pre-exceptional loss of between £80m and £120m during 2017, down from the £60m profit forecast when it first warned in June. Chief executive Peter Crook has stepped down with immediate effect, with chair Manjit Wolstenholme taking up the role as executive chair.
Home credit collections are running at 57 per cent of those due, compared with 90 per cent during the same period in 2016, while sales each week are around £9m lower, management revealed in an unscheduled trading update. This is partly because software used to schedule collections for agents has sometimes presented inaccurate data, for instance on collection times.
Management also revealed that the Financial Conduct Authority is investigating the sale of repayment option plans (ROP) by its credit card subsidiary, Vanquis Bank. Under a payment option plan a customer can temporarily freeze their loan repayments without affecting their credit history. The product fee is calculated as a percentage of a customer’s outstanding balance, typically £1.29 per £100 owed, according to a spokesperson for the company.
The FCA is investigating sales of the product during the two years to 1 April 2016, when Provident voluntarily agreed to suspend all new sales and conduct a customer contact exercise. Vanquis Bank also made an agreement with the Prudential Regulatory Authority to not pay any dividends to Provident without the regulatory body’s consent. Vanquis makes around £70m in annual gross revenue from its back book.
To protect its capital base, the 43.2p-a-share interim dividend has been pulled and a full-year payout is also unlikely, management said. Shares in the sub-prime lender closed two-thirds down on the day of the news. Meanwhile, the yield on its retail bond maturing in 2020 leapt to 26 per cent, from 3.5 per cent at the previous day’s close as the perceived risk of holding the debt increased.
