The disparate cluster of businesses that fall under the banner of diversified financial services is not easily served by a generalist outlook. After all, the business drivers of spread-betting companies share little in common with those of high-cost credit providers.
But if there is one theme that binds the pack, it is regulation.
Unfortunately for investors, second-guessing watchdogs is not an easy task. That’s especially true of European Union (EU) competition authorities, who are about to trawl through London Stock Exchange’s (LSE) proposed blockbuster tie-up with financial data giant Refinitiv. As you’d expect, both acquirer and target expect the deal to go through, although antitrust lawyers are reportedly undecided on what constitutes “the market” in which the combination will eventually operate. Should those negotiations hit a snag, investors can expect a sharp reaction in LSE’s highly rated shares.
After having their wings clipped by the European Securities and Markets Authority’s shake-up of leverage rules, contracts for difference (CFD) specialists Plus500 (PLUS) and IG (IGG) have rebounded faster than many were expecting. Rule changes in Australia aside, steady growth in the sub-sector currently looks nailed on, although Financial Conduct Authority (FCA) alignment with EU rules suggests a post-Brexit bonfire of red tape is unlikely.
For the first time in a long while, high-cost credit provider Provident Financial (PFG) reported “no known regulatory headwinds”, although much still hinges on the Prudential Regulation Authority’s ruling on the group’s capital position.
However, the one constant of the consumer credit landscape is change, as rules play catch-up with the most profitable lending lines. Amigo (AMGO), which dropped out of the FTSE 350 index after making its debut last year, is a case in point. An FCA review of the guarantor loans, in which Amigo is the dominant player, may not have found an issue with the product itself, but the market is now under tight scrutiny.
