Shares in crisis-hit lender Provident Financial crash again as FCA opens 2nd investigation

The UK's financial regulator has begun a second investigation into crisis-hit subprime lender Provident Financial.
The Financial Conduct Authority is looking into the treatment of customers of its franchise Moneybarn, the group said on Tuesday.
Provident Financial lost more than 74% of its value in August and has yet to recover.

LONDON — The UK's financial watchdog has begun a second investigation into crisis-hit lender Provident Financial.

The Financial Conduct Authority (FCA) is looking into the group's car and van financing franchise Moneybarn. The regulator is making sure proper affordability assessments were made and customers in financial difficulty are treated fairly, the company said in a statement on Tuesday.

Provident Financial, which offers door-to-door loans to subprime borrowers who would usually be turned away from traditional lenders, said it "aims to act responsibly in all its relationships, and to play a positive role in the communities it serves."

The investigation is more bad news for the troubled company, which lost more than 74% of its value in August after cutting its dividend, issuing a profit warning, announcing the resignation of its CEO, and announcing that the FCA was investigating repayment plans offered on its Vanquis credit card.

The company said at the time it expected to make a loss of between £80 million and £120 million this year, as debt collection rates plummeted from 90% in 2016 to 57%.

Provident Financial is yet to recover from the drop, and shares were down 15% on Tuesday at close to 9.00 a.m. GMT (4.00 a.m. EST). Moneybarn is a relatively small arm of the group's business, with around 50,000 customers out of the group's total of more than 2 million. However, the news "adds to the woes for the embattled lender and is another headache for management at the worst time," said Neil Wilson, an analyst at ETX Capital.

The FCA has yet to issue any fines in relation to the Vanquis investigation. However, "some estimates suggest it's going to be a £300 million bill to clear up the mess," Wilson said.

"Ultimately, with a healthy cash pile, new management and a turnaround strategy in place, Provident can weather regulatory storms such as these. The real question is whether it can get its core doorstep lending business back in shape. On that front the outlook is very uncertain."

Provident said in its statement that "the FCA has continued to discuss certain processes with Moneybarn and Moneybarn has made a number of progress improvements, including to the way it deals with future loan terminations," since the FCA authorised Moneybarn on June 3, 2016.

The group said it "will work collaboratively with the FCA to investigate the remaining concerns and resolve any outstanding related issues as soon as practicable."

The company said it intended to make a post-closing trading update in mid-January.