Provident Financial (PFG) bears a storied and respected name, but foresight or prudence are difficult attributes to apply to the subprime lender at present. After a botched restructuring of its doorstep lending operations, and a regulatory probe into ‘repayment option plans’ at its credit card business Vanquis Bank, now its motor finance arm Moneybarn – a small segment, but important to its long-term growth – has run into trouble. The Financial Conduct Authority (FCA) is knocking on the door again, and this time wants to thumb through Moneybarn’s customer affordability assessments and ask a few questions about how it has treated customers in financial difficulties.
The lender’s shareholders can be divided into a few categories. The 'provident' ones, who sold after the first sign of trouble in June; the ‘fool me once, shame on you’ brigade, who sold after the second warning in August containing the Vanquis news and the bigger bad numbers on home credit (this title’s recommendation); and the contrarians, who held on at both points, on the basis that the market was pricing in a total collapse that wasn’t there. The latter camp includes such investors as Neil Woodford, who told the Financial Times in an interview earlier this month that to have sold in August would have meant “compounding” an error.
Perhaps, but that's an early call. The bears have certainly been uneasy over the past few months, as the lender set out a plan to get the doorstep business back on track, including measures to improve collections. But now the bulls are also sitting less comfortably. There are problems in each of Provident’s three major divisions, two of which are subject to live FCA investigations. Emboldened by its payday loans clampdown, the regulator is concerned about long-term indebtedness and excessive charges, while the ongoing fallout from banks’ long mis-selling of payment protection insurance (PPI) provides further reasons to be negative. Meanwhile, the tragic death of executive chairman Manjit Wolstenholme leaves the company without a permanent chairman or CEO.
