The costs of Financial Conduct Authority investigations brought non-standard lender and Moneybarn parent Provident’s full year loss before tax for 2017 to £123m, compared to a profit of £343.9m in 2016.
The bulk of this came from an estimated £168m in compensation Provident’s credit card provider, Vanquis, will need to repay its customers after the FCA said it had failed to disclose the full price of its Repayment Option Plan add-on-product. Vanquis also received a fine of almost £2m from the FCA.
On top of this, Provident estimated Moneybarn’s liability for an FCA investigation into its affordability, forbearance and termination options will be £20m. The company said it was continuing to cooperate with the FCA in this investigation.
All in all, Provident reported exceptional costs of £224.6m.
Even before these costs were taken into account, Provident’s adjusted profit before tax in 2017 was down 67.3% year-on-year to £109.1m. Much of this can be accounted for from a £120m loss its Consumer Credit Division suffered as a result of a restructure to its debt collection operations.
In order to meet the costs of resolving these investigations, maintain its investment grade rating, seek to restore its prudent capital position and re-establish normal access to funding from the bank and debt capital market, Provident also revealed a fully underwritten rights issue to raise gross proceeds of approximately £331m.
This number is notably below the £500m rumoured recently.
The company remained relatively upbeat about the future, and it said ‘significant’ actions were underway to strengthen the culture and governance of the business.
It added actions taken by management in home credit since August 2017 are delivering a significant improvement in customer service and operational performance, and the business enters 2018 with 527,000 active customers and receivables of £352.2m, consistent with the recovery plan.
Moneybarn specifically reported new business volumes were up 17% for the year.
Malcolm Le May, chief executive officer, 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.”
The company intends to restore dividends with a nominal dividend for the 2018 financial year before adopting a progressive dividend from the 2019 financial year.