Thanks folks - enjoyed this thread, as NS20 said, good to see caution not called out as deramping. Personally I’m hopeful of 50p, but i don’t expect it for at least a year and it’s (obviously) not risk free.
The beauty of this share is that, from where it is now, even someone like me who doesn’t think Amigo will (or should) be as big as before can still make big returns. Even 50p a year from now is a 5x return - and that’s means getting back to only a sixth of its peak market cap. That’s why it looks a decent option to me, even with the potential downsides.
In that case, in order to borrow, you’d need to find two people who are prepared to stand behind the full amount repayable and / or be prepared to pursue other parties to the agreement.
One of the reasons given for asking for two guarantors is that they’d find it less daunting only being liable for half.
So I’m not convinced J&S liability offers many benefits to anyone other than Amigo itself - and may be counter productive if it makes it more difficult for the borrower.
I take him at his word too. I believe he means it and I also believe that current processes will be solid. After what's gone on over the last 18 months or so, Amigo's affordability checks must be very solid. I'm just not sure how much comfort it provides for historic lending. And I think these more rigorous affordability checks now in place might - especially in post-furlough times - mean that we don't lend as widely as we once did. Personally, I think that's a good thing, even if it means Amigo won't ever get back to the size it once was.
I think that you're suggesting two guarantors are only liable for their half of the loan. Agree that might make it more attractive to the guarantor, but it leaves Amigo more exposed because if one of the guarantors fails to make their portion of the repayments, the other guarantor can't be asked to step in and cover. Swings and roundabouts maybe... but worth a try to see how it works.
Also a second guarantor does not lessen Amigo's obligation to make sure that the borrower can afford the payments in their own right. But it might give some extra safeguard in case of a default if borrower's circumstances change after lending.
Franky, it may well be true that a lot of people will need help when furlough ends. But borrowers needing a loan is one thing - they have to have the ability to repay too. We can't pretend that the next few months won't pose a lot of questions on that side.
Second guarantors could be a good idea but it raises lots of follow on questions. Would guarantors be jointly / severally liable? So is each guarantor only responsible for their share of the repayment or are they jointly responsible for the full amount? How easy would it be for borrowers to find two people who'd be prepared to stand behind their loan? I think a lot of people find it difficult to approach one guarantor so it could be a barrier to someone even applying.
I've seen Gary's video and it was good to see him so bullish about Amigo's checks. But, if he's right, why is there an FCA investigation AND such high FOS uphold rates? Maybe Gary is talking about today's processes rather than how checks have been done in the past - but it's the historic stuff which is driving complaints. Even Amigo's assumptions are based on upholding 40% of complaints received. OK, that's a lot lower than the 87% at FOS, but it's still recognition that the firm knows there are significant issues. I think that's why there hasn't been a JR against FCA / FOS so far and why GJ puts a lot of emphasis on his ability to work well with regulators, which is the right approach in my opinion.
If Gary is right, then there's absolutely no reason why we shouldn't be restarting lending today. But if processes need a bit more work, then I'd rather Amigo take a bit longer before restarting lending in order to get it right.
Cheers Murphy, your numbers make total sense to me. I also got my calcs by using the sensitivity variances to work out what the starting assumption was and it all knitted together (ish). I think we used the same method, you're just using a more up to date version. It's really positive that there seems to be an improvement in the numbers from FY results to Q1 results. I think this means that both volumes and average payout have come down since FY results (uphold rate looks same at 40%).
My only question is that I think your £16.5m total redress bill is just based on FOS complaints? I'd assumed that the others that have been budgeted for were what Amigo expected to pay out on complaints they deal with direct, that don't go to FOS. I think that's going to be on top of your FOS bill? Until we know what kind of volumes are being dealt with by Amigo direct, it's hard to know what that cost is likely to be. But I'm really pleased that the picture has improved between FY end and Q1 end.
Goalposts have moved, but it's not because the rules have changed. Recent high court judgment says expectations on affordability have remained broadly the same since 2010 (with some tweaks / updates).
I think what's changed is the FOS approach. Looking at old decisions, they used to say if monthly repayment and total cost of loan were made clear and they asked a few basic questions, that was enough. It was up to the borrower whether to take the loan. But now they're holding Amigo to specific rules, which have always required them to do more than that.
It is definitely unfair on Amigo, who has done business over the years believing it was doing what FOS thought was fair. But our difficulty is that FOS approach is consistent with the rules. I think that's why BOD have struggled to find grounds for JR.
I also heard Gary say we do everything properly. If Gary is right, he needs to get in front of FOS sharpish and show them how our checks have worked. We can't have an 87% uphold rate if Gary is right.
Sorry, those links included the final bracket and don't work. They should be:
Thanks Murphy, good to see your thoughts on complaints. My calcs are based on the table in Section 2.3 of the full year results 2019/2020 (https://polaris.brighterir.com/public/amigo_loans/news/rns/story/x4zlz3r) :
Assumption Sensitivity £m
Complaint volumes1 +/- 16.5
Average uphold rate per complaint2 +/- 20.6
Average redress per valid complaint3 +/- 7.9
1 Future estimated volumes. Sensitivity analysis shows the impact of a 20% change in the number of complaints on the provision.
2 Uphold rate. Sensitivity analysis shows the impact of a 10 percentage point change in the applied uphold rate on the provision.
3 Average redress. Sensitivity analysis shows the impact of a £500 change in average redress on the provision.
By my maths, the provision is based on roughly 40,000 complaints received, 40% uphold rate (so 16,000 payouts) and average redress of around £5,000 (I've approximated)
What we don't know is how actual complaints volumes and outcomes are tracking against those assumptions. Having seen how quickly CMCs can get stuck into a sector, and given Amigo has probably had half a million customers, and given FOS uphold rates and compensation amounts are very high (I think PPI typically resulted in a £2,000 payout), and given Everest forecast of a £300m bill, I am not banking on any of the provision being returned to the company. The H1 data from FOS is, as I understand it, January - June 2020 (not Q1 and Q2 of FY). Whilst still low, they show a big increase on previous volumes and we know complaints volumes have also increased significantly more recently (this is what prompted the increased provision in July). I'm eagerly waiting for latest data on volumes, hopefully we'll get a complaints VREQ update soon. Until we get that, and it shows some positive trends, I'm not banking on any of the provision being returned.
What I'm struggling to square is two seemingly contradictory statements about whether the provision is intended to be the total amount ringfenced for complaints (see page 30 - https://www.amigoplc.com/investors/annual-report-2020):
the provision relates to both the estimated costs of customer complaints received up to 31 March 2020 AND THE PROJECTED COSTS OF POTENTIAL FUTURE COMPLAINTS where it is considered likely that customer redress will be appropriate, based on the available data on the type and volume of complaints received to date.
with this one:
THE PROVISION IS NOT INTENDED TO COVER THE EVENTUAL COST OF ALL FUTURE COMPLAINTS; such cost remain unknown. There is significant uncertainty around: the emergence period for complaints; the activities of claims management companies; and the developing view of the FOS on individual affordability complaints, all of which will significantly affect complaint volumes, uphold rates and redress costs.
No offence taken Richmond. Yes, I'm very sceptical of groupthink so perhaps I can come across as an awkward git. But it comes from wanting us all to know exactly what's going on. I'll think about how I can express things differently.
Scrambler, what you say is the definition of a false choice because I have options besides the ones you've given me.
I'm entitled to hold a position I'm nervous about and I'm entitled to explore the issues that make me nervous to inform my decision making. This is a big risk / big reward investment so nervousness is justified.
Seamus, I tend to agree - Amigo probably didn't just take people's word for it and I hope they didn't.
But lots of posters (and even JB himself in a tweet on 21 July) have suggested that Amigo did (and were entitled to) take people's word for it.
Scrambler, that's a false choice - I'll stay invested, thanks all the same, and continue to ask questions (including ones you might find inconvenient) to help shape my future decisions, which might involve topping up or selling up or staying put. Good luck.
Richmond, 10k might not be a lot to you, but it is to me. We've all got to start somewhere. And it's only £10k from the perspective of what I've spent, it's about £7k as it stands but it's potentially much more if it grows. Not sure what you mean by commotion.
Scrambler, the reason I posted is because several people have asked why I'm invested. If you're not interest in my posts, you know where the filter button is. (I have never filtered anyone because I want to see all contributions, even if I don't put any weight in them. And I don't question anyone's right to post, irrespective of how big their investment is. And I don't BS).
A few people have asked me why I'm invested because my posts have been quite challenging. Fair enough, I thought I'd set out. First of all, this has always been an investment I’ve been nervous about. But as many have said, big rewards only come with big risks. I've lost money on other sub prime lenders that are no longer with us so I did a lot of research to understand what did for them and why I got it wrong.
I thought I had done with sub prime but when Amigo's share price plummeted, I became interested. I've kept my holding low, partly because I don't want to lose too much money again if things go wrong and partly because what I came away from the payday lending sector with some doubts about their behaviour. So, yes, I’ve been cautious as I’ve gone along.
When I bought in, I thought Amigo was so underpriced and was different enough to the payday lenders that they were worth a punt. Amigo aren’t just online, they speak to applicants before lending – not true of payday. The interest rate is lower than payday in percentage terms. It was a FTSE 250 company. It felt like a lot of the firm’s problems were temporary and down to James Benamor. So I saw some key differences and big upsides.
I’ve said a few times, I’ve never believed the hype that this was going back to being a £1.3bn company. I never would’ve bought in at 270p per share. But at less than 10p, worth a go. I could possibly see 50p per share within a couple of years – that’s a 5x return.
After my experience with payday lenders, I was (and remain) convinced that the BOD strategy of positive engagement with FCA / FOS is the right approach to achieve that kind of SP. None of the payday lenders, even with their multinational parents, ever judicially reviewed FCA or FOS. None of them ever acknowledged their complaints liability either, so I was reassured that Amigo had put aside such a big sum to deal with complaints.
I was always concerned that the BOD didn’t share the assumptions behind the provision. But I forgave them that because I thought it could just attract unwanted attention to say they expect to receive / uphold / pay compensation on X thousand complaint. And I did my own maths about what the assumptions might be, which I’ve shared. I had nothing to sense check that against, but it seemed OK.
I was hugely disappointed to lose Glen – I thought he had gravitas, experience and steel. I liked the fact that he distanced himself from Benamor. I worried that his departure would tempt people to back JB, but when JB lost, I decided it was worth a top up. My average is now 11.5p.
If this does get to 50p, it won’t change my life but I’ll do pretty nicely. But I also don’t want to lose nearly £10k. I do see major challenges and I’m expecting more bad news on complaints. I don’t want to see a repeat of Wonga / Brighthouse but if it’s going to happen I want to know about it as soon as I can. So that's me - if you think I'm a deramper or parasite