(Alliance News) - Amigo Holdings PLC said Thursday a statement made by founder and former boss James Benamor on social media on Wednesday night contains "several material inaccuracies".
Shares in the sub-prime lender were at 29.50 pence each on Thursday, down 27%. The company floated in 2018 at 275p a share.
Amigo provides loans to consumers, payments for which are guaranteed by a borrower's friend or family member.
Benamor left the company's board again on Wednesday.
Benamor, who owns 61% of the company, stepped down as a non-executive director with immediate effect. He first left the Amigo board in September 2018, before rejoining last December.
He posted a message on the website Medium on Wednesday night explaining his decision to leave the lender again, saying the company is "committing slow motion suicide, whilst play out the script of Brewster's Millions".
Benamor said he rejoined the Amigo board as he could not understand how Amigo seemed to have such high redress rates, but was still paying out on target.
The sub-prime lender was forced by UK regulators to change its stance on irresponsible lending.
Last March, the UK Financial Conduct Authority sent a letter to subprime lenders, saying these firms should consider the degree to which they present risk and how they can mitigate that.
The two key risks the FCA uncovered in its assessment of high cost lenders was: a high volume of re-lending, which "may be symptomatic of unsustainable lending patterns"; and insufficient affordability checks these firms have in place, leading to loans being issued that customers may not be able to afford.
At the time, Amigo responded saying its number of payments made by guarantors as a proportion of total payments rose "very slightly" in financial 2018 and was in line with economic conditions, and has "remained broadly constant" during the current financial year at just under 10%. Amigo also noted affordability criteria remained "fundamentally unchanged" since a "thorough review" when it obtained FCA authorisation in 2016.
In his statement Wednesday, Benamor said: "The Amigo board had a choice. There is a judicial review process, whereby a company can test the Financial Ombudsman Service's adjudications in court. Amigo were, and still are, within their rights to challenge the FOS's new position. On their side they have the FOS's previous position, the S.166 report, and years of precedent.
"Or, if they agreed that almost all loans in their book had been made irresponsibly, they should have informed shareholders that they had now taken this position, made a provision for well over GBP1 billion of redress, ceased lending and put themselves into administration."
Amigo, on Thursday, countered this point, saying its rejects Benamor's "binary analysis".
Amigo said: "The company monitors its loan book regularly and has concluded, as part of its third quarter review process, that it does not have a systemic problem. In the company's third quarter results, it announced a GBP18.7million provision. This provision relates to both the estimated costs of customer complaints received up to December 31, 2019 and the projected costs of potential future complaints on certain higher risk historic loans."
Amigo also noted this update was unanimously approved by its board, which included Benamor.
"While it is clear that the FOS's approach evolved during 2019, it is not the case that the FOS informed Amigo of a specific change in its approach during spring 2019 as Benamor suggests. The FOS continues to determine complaints on a case-by-case basis and Amigo responds accordingly," Amigo added.
Benamor stated: "FCA guidance is very clear that, where systemic problems are recognised, customers who have not complained should be treated in the same way as customers who have complained."
He continued: "What the Amigo board did next was neither of those things. Instead, they began refunding almost all complaints received, but continued to lend on a virtually unaltered basis, hoping no one would notice. When I came back to the board at the end of 2019, it was because I could not understand how Amigo seemed to have such high redress rates, but was still paying out on target. My first action as a director was to personally audit the most recently lent and refunded loans. I found that Amigo had, for six months, been lending almost entirely in a way that matched their own complaints team's definition of 'irresponsible'. I thought that proving this would force the board to take adequate action. It did not."
Amigo retaliated, saying: "Amigo approaches its market and stakeholder communications in a transparent and open manner. Amigo carefully monitors its regulatory disclosure obligations, seeking external advice where appropriate. The formal sale process does not change Amigo's ongoing disclosure obligations with which it is continuing to comply."
Amigo is currently undergoing a strategic review and formal sale process, which was launched at the end of January. The firm said Wednesday Benamor's departure does not affect this.
Benamor said Amigo went from the "most efficient" company in the FTSE 250 to a "cash cow" for consultants, lawyers and suits, who are only interested in "keeping the gravy train running for as long as possible". Benamor said they have no interest in Amigo being "honest with shareholders or customers about the situation it was in".
"The recent formal sale process, which I voted against, is in my opinion nothing more than yet another handy excuse to delay necessary action, and to further restrict the flow of information to shareholders. I could not, in good conscience, remain on a board that is so thoroughly mismanaging a company that I love," he added.
Amigo disputed this point. The company said its board, including Benamor, unanimously approved the announcement of the strategic review and formal sale process in January.
Amigo continued: "The formal sale process was initiated as a direct consequence of Benamor notifying Amigo that Richmond Group (Benamor's holding vehicle) was a willing seller of its shares in Amigo, which would place Amigo into an offer period in accordance with the takeover code."
Amigo said - notwithstanding the "potential disruption" to the sale process - it intends to continue with the process. Amigo will update the market on this in due course, it said.
Benamor added: "Amigo's experience marks a new chapter in the experiment that is the FCA and the FOS. This chain of events has proved that unchecked regulatory power produces a market where investors cannot safely build companies that make affordable, lower interest loans. Companies that require hundreds of millions of pounds of investment and lose money for years as they build a loyal customer base. Instead they have limited borrowers to short-term high-interest fly-by-night lenders and unregulated finance."
He said Amigo's board has an obligation to customers and shareholders to recognise this and be clear about its current situation.
"They must immediately cease lending, collect in the book, pay down debt, and proceed directly to judicial review. If it is found that the FOS and FCA's previous view is correct, shareholders will get back a good proportion of the money that was paid at float. If not, each customer will be due a payout equalling a fraction of the interest they have paid, as small compensation for a future of financial exclusion," he said.
Amigo floated in June 2018 with a market capitalisation of GBP1.31 billion, making Benamor among the wealthiest businessmen in the UK at that time. Since then, however, the stock has plummeted, reducing the company's value to GBP203 million.
By Paul McGowan; paulmcgowan@alliancenews.com
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