£120m losses confirmed at crisis-hit Provident Financial

Crisis-hit Provident Financial is to report pre-exceptional loss of around £120m in its consumer credit division, which  it says “is at the upper end” of its expectations.

The Bradford-based sub-prime lender this morning published a trading update for the year to 31 December. The company said the losses reflected a “lower than expected rate of re-connection” with home credit customers whose relationship had been adversely impacted by the poorly executed migration to the new operating model in July 2017.

Provident was hit by a profit warning in August, leading to the exit of its chief executive Peter Crook, after the company was forced to announced that a transformation programme, which was expected to boost profits to around £150m, was forecast to generate losses of up to £120m.

However, the firm said this morning that its home credit management had delivered “substantial improvements” in customer service and operational performance since August and the business enters 2018 with 530,000 active customers, up from 500,000 in September 2017. Home credit receivables ended December at approximately £350m, up from £316m at September 2017 but down from December 2016, when they stood at £560m.

The home credit business is also announcing a proposed rationalisation of its central support functions, which is subject to workforce consultation. Provident said: “This is a necessary step to align the cost base to the reduced size of the business. In addition, the business expects to secure improvements in the effectiveness and efficiency of the field organisation as the new business model continues to be embedded. Customer facing resource is being managed very carefully in order to ensure that further improvements in customer service are delivered.”

It said that Vanquis Bank and Moneybarn, which are under investigation by the Financial Conduct Authority (FCA), had both traded satisfactorily through the final quarter of the year. Provident said both had started a dialogue with the FCA with a view to reaching a resolution to their respective investigations.

In August it acknowledged the FCA was examining the repayment option plan (ROP) offered by its credit card business, Vanquis Bank. The Moneybarn investigation relates to the processes applied to customer affordability assessments for vehicle finance and the treatment of customers in financial difficulties.

Malcolm Le May, interim executive chairman, said:“I am pleased to report that good progress has been made towards restoring customer service in the home credit business and that we are engaged in a dialogue with the FCA with a view to reaching a resolution of the regulatory investigations at Vanquis Bank and Moneybarn. In addition, we continue to make progress in the search for a new group Chief Executive.

 “All of our businesses have strong positions in their respective markets. Our priorities for 2018 are to rebuild trust with our customers, regulators, shareholders and employees. I would like to thank all our employees for their continuing hard work and dedication throughout a difficult period for the group.”

The Vanquis Bank division reported new customer bookings of 93,000 in the final quarter of 2017, a reduction of 20from the same period in 2016.

Provident said: “In addition, volumes delivered by the Argos partnership during the seasonally busier fourth quarter were 1,000 in 2017 compared with 15,000 in 2016. Following its acquisition by Sainsbury’s in September 2016, Argos has reviewed all its strategic financial services partnerships and in late December informed Vanquis Bank of its intention to exit the partnership arrangement when the contract expires in early 2018 and to take all of their card-issuing activities in-house.”

It said the home credit business had made good progress in implementing the recovery plan. Collections performance in December of 78% was up from 65% in September and 57% in August.

Vanquis Bank has commenced a dialogue with the FCA with a view to reaching a resolution of the investigation into ROP. More recently, Moneybarn has also engaged with the FCA in order to resolve the investigation in relation to customer affordability assessments and the treatment of customers in financial difficulties.

The voluntary requirement agreed between Vanquis Bank and the FCA to suspend all new sales of ROP in April 2016 remains in place and the agreement with the Prudential Regulation Authority (PRA) not to pay dividends to, or enter into certain transactions outside the normal course of business with, the Provident Financial Group without the PRA’s consent, also remains in place.

The home credit business continues to operate under an interim permission whilst the home credit business implements its recovery plan.

The group continues to actively monitor its capital and liquidity positions in the context of the uncertainties surrounding the home credit recovery plan and the ongoing FCA investigations into ROP and Moneybarn.

At 31 December 2017, the group had cash resources of £34m, excluding the liquid asset buffer held by Vanquis Bank, and headroom on the group’s committed debt facilities amounted to £66m. The flow of retail deposits within Vanquis Bank has continued in line with its internal funding plan and the additional capacity for Vanquis Bank to take retail deposits amounted to £77mat the end of 2017. Maturities in 2018 comprise the third instalment of the M&G term loan of £15m due in January 2018 and £20m of private placement loan notes due in March 2018.

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