Provident Financial confirms £300m rights issue to deal with financial firestorm

Crisis-hit lender Provident Financial has confirmed it is looking to raise around £300m to shore up its finances and meet the costs of FCA probes into its credit card and car finance arms after what has been a turbulent year for the 138-year-old company.

Provident announced this morning it has reached an agreement regarding the FCA investigation into ROP within Vanquis Bank for failure to adequately disclose the potential charging of interest on ROP charges.

The total estimated cost of settlement of £172.1m reflected in the 2017 financial statements comprising customer restitution in the form of balance reductions and cash settlements of £127.1m, other estimated costs and provisions of £43m and a fine levied by the FCA of just under £2m.

Provident said its Moneybarn division continues to cooperate with the FCA in its ongoing investigation into affordability, forbearance and termination options with an estimated liability of £20m.

Chief executive Malcolm Le May said this morning that the group’s turnaround would start to gather pace now that an agreement has been reached with the FCA.

He said: “When I became group CEO, I stated my key objective was to execute a turnaround of the group. Today we have made progress on that objective by agreeing a resolution with the FCA in relation to Vanquis Bank and we now have a clear view on the estimated cost of the FCA investigation of Moneybarn.

“To grow the business and deliver long-term sustainable returns to our shareholders, PFG needs to strengthen its balance sheet. Today we have announced a proposed rights issue to raise net proceeds of £300m which the board believes will allow the group to implement its strategy and restart paying a progressive dividend in 2019.

“The group’s businesses of Vanquis Bank, Provident home credit, Satsuma, and Moneybarn are all well positioned in their markets, with products that customers’ value and which operate well throughout the economic cycle. The recovery in Provident home credit is on track with collections performance continuing to improve.

“In 2018, the group will continue to rebuild trust with our customers, regulators, shareholders and employees. The group’s turnaround is making progress, but the board and I realise there is still much to do to achieve a customer centric business delivering long-term sustainable returns to our shareholders.”

Also announcing its final results for the year to December 2017, Provident said group performance has been “significantly impacted” by the operational disruption in home credit following the “poorly executed migration” to the new operating model in July 2017

Adjusted profit before tax in 2017 reduced by 67.3% to £109.1m (2016: £334.1m) and adjusted basic earnings per share fell by 64.8% to 62.5p (2016: 177.5p).

Exceptional costs of £224.6m reflected in 2017 (2016: exceptional gain of £17.3m) comprising estimated cost of settlement in respect of the FCA investigations in Vanquis Bank (£172.1m) and Moneybarn (£20m) together with costs incurred in CCD in respect of the migration to the new home credit operating model and subsequent implementation of the recovery plan (£32.5m).

Statutory loss before tax reduced by 135.8% to £123m (2016: profit of £343.9m) and basic loss per share was down 149.9% to 90.7p (2016: earnings per share of 181.8p).

As previously indicated, the interim dividend was withdrawn in August 2017 (2016: 43.2p) and no final dividend is proposed in respect of 2017 (2016: 91.4p) in order to “retain liquidity and balance sheet stability”, Provident said.

This morning’s announcements cap off a challenging year for the Bradford-based group, which lost two thirds of its share value in a day last year after it issued a second profit warning in the space of a month, which led to the departure of its chief executive Peter Crook.

The company’s shares dropped to a 22-year low yesterday following the reports it was sounding out plans for the rights issue. Falling to 568.60p as the markets opened yesterday, Provident shares were last at that price in 1996.

Shortly after 9am they were 12.4% down on Friday’s close at 575.24p.

However, Provident’s stock jumped in early trading this morning, with shares trading at 803p, up 36%.