* Provident will no longer offer high-cost products
* Reports 2020 loss versus year-ago profit
* Looks to place CCD into managed run-off or sell it
(Adds CEO comments from call, background on industry, updates
share move)
By Muvija M
May 10 (Reuters) - Provident Financial on Monday
called it quits on its doorstep lending division, putting 2,100
jobs at risk, as the pandemic hit turnaround efforts for a
business that survived the Wall Street crash of 1929 and the
global financial crisis.
The company, a sub-prime lender since it was established in
1880, said it plans to put the business into managed run-off or
consider a sale if there was interest. The exit is expected to
cost Provident up to 100 million pounds ($141 million).
Shares in Provident slid 6% to the bottom of the UK's
mid-cap index by 0840 GMT.
Provident had been trying to revive the business after
botching an overhaul in 2017 when it sought to replace its army
of self-employed doorstep collection agents with direct
employees.
But its efforts, including a plan to get the unit to break
even last year, were derailed by the COVID-19 crisis, which
hammered lending volumes and drove up costs.
Britain's subprime lenders, which serve low income
households with poor credit profiles, have struggled to meet
funding costs during the pandemic, making it hard for them to
meet growing loan demand from their clients.
"The home credit market in our view is in irreversible
decline," Provident Chief Executive Malcolm Le May said on a
media call.
Rising complaints by claims management companies, the
financial impact of COVID-19 on the lending division and the
evolving regulatory environment rendered the business
commercially unviable, he said.
Several such firms including payday lenders Wonga and
Quickquid have closed in recent years due to complaints and
regulatory scrutiny of their business model.
'MORE SUSTAINABLE MODEL'
Provident, which fended off a takeover attempt by smaller
rival Non-Standard Finance in 2019, said it planned to
build on its existing unsecured personal loan product expertise
during 2021, in the "mid-cost" segment of the market.
The company, which has a banking licence, said the unsecured
loan business was an important step towards its plans to become
a broader banking group to the financially underserved customer.
Analysts at Panmure Gordon said: "This (focus) entails a
lower rate of receivables growth but a more sustainable model."
Goodbody analyst John Cronin said the new initiative was
likely to be channelled through Provident's credit card business
Vanquis.
Provident outlined in March a 50 million pound plan to
settle a jump in complaints and claims against the subprime unit
and said the business was also under a regulatory probe over
conduct issues.
A UK court has granted leave for the settlement plan, with a
meeting of the company's creditors set for July, Provident said
on Monday.
Provident posted a 2020 loss before tax of 113.5 million
pounds versus a year-ago profit of 119 million pounds.
($1 = 0.7107 pounds)
(Reporting by Muvija M in Bengaluru, Editing by Jane Merriman,
Sayantani Ghosh and Emelia Sithole-Matarise)
