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Freekick, I’ve said this before but all Amigo’s problems have been public knowledge for at least two and a half years.
Any shareholders who have bought in that time (which is almost all) should have known this was a huge gamble.
Unfortunately, too many piled in, only too happy to make a killing from the first scheme, at the direct expense of borrowers who were being asked to take a 90% loss.
I don’t wish losses on any shareholder and Amigo has been badly run under a succession of leaders - up to and including Gary. But the “poor old me” lines are very unconvincing.
Freekick, I think that’s right. But it won’t be recovering to 8.4p from 4.2p.
Amigo’s MCAP will be divided between 9.5 billion new shares. It’s around £20m today, let’s say it grows to £75m post raise (because it now has £40m extra in the coffers and it’s prospects of survival are better), the new SP will be 0.8p. So it would need an 10-fold rise (not just a doubling) to get to 8.4p
Returning to lending is a condition of the scheme. If that doesn’t happen by next February, Amigo goes into wind down.
The interesting question, as you suggest, is what does relending mean? Is it enough to have offered one single loan? Or does it mean having secured FCA approval to have resumed unfettered lending? Or something else?
Amigo is creating 9 billion new shares (19 new for every one existing).
It wants to raise £40m from this new equity.
Each new share costs 0.4444p (£40m divided by 9 billion new shares).
You have to buy 19 of them for every current share. 19 x 0.4444p is 8.4p. So holders need to pay 8.4p per current share to take up their rights.
So you need to pay 25,000 x 8.444p - around £2,100.
Or you pay nothing, and you retain your 25,000 shares but those shares now represent 1/19 of the proportion of the company that they used to be, once the new shares are issued.
Or you only take up some of your rights, meaning you’re still diluted but not by the same extent.
Yes but what that means is that if the majority of the £40m is provided by IIs (not existing shareholders) then existing shareholders as a group will be diluted.
Let’s say shareholders on average take 8 of their 19 shares, it’ll cost them 3.5p ish per current share and they’ll be diluted by around half.
Beastly, you make a good point about passive shareholders who seem to think they are entitled to automatic profits without recognising their own governance role or their pecking order compared to creditors.
But I think you’re off the mark about the May 2023 date. That’s the absolute final legal deadline by which the equity raise has to be completed. And lending has to restart by February 2023. If those two things don’t happen on that timeline, Amigo is in wind down under the terms of the court sanction.
So I think it’s legitimate to expect updates to have been more forthcoming and it will be a huge own goal if a substantial amount of flesh is not put on the bones at the AGM regarding relending, capital raise and dilution.
Granted, Gary inherited a basket case after the fun of Benamor. But the fact that he has trousered nearly £2m for his tenure does not reflect well on this company.
Look like Beastly will be chipping in for his gold clock. Anyone else?!
Largey, I don’t think you understand how this market has been operating and why so many firms have got it wrong.
Amigo made huge profits for years and years by lending to people who couldn’t afford it. The fact that it’s unaffordable is what traps people into repeat and growing debt. The FCA has made this point repeatedly and it’s exactly why Amigo needs a scheme.
I’m not saying this is about more complaints. I’m saying the pool of people who can genuinely afford to borrow from Amigo will have shrunk hugely due to cost of living increases. If it can’t find people to lend to, how does it make profit?
All lenders need to find people who need a loan and can repay. Big banks have two advantages over Amigo:
1 - it’s lending criteria haven’t already got it into hot water so it can lend more confidently knowing it’s processes are working. I know Amigo is improving that and let’s hope it’s new systems work.
2 - the banks lower rates mean more people will be able to afford their product - £3000 over three years costs £145 per month from Amigo or £95 per month from Santander. So Amigo will cost £600 per year more. The number of people with enough money to afford Amigo’s loan MUST be smaller than Santander’s. You have to have MORE disposable income to borrow from Amigo than you do from Santander.
If Amigo gets its affordability processes right and filters out those who can’t afford the loan repayments, it’s hard to see a significant market.
I didn’t say the era of lending and borrowing was over. I do think the era of lending to people who can’t afford to repay is over.
And so the question stands - who will both need an Amigo loan AND be able to repay it? Anyone who can afford to take on new credit after the forecast energy and food price rises will be able to access cheaper mainstream credit. So why would they choose Amigo?
I don’t doubt that the crisis will increase demand for loans. But it will also decrease ability to repay. To lend affordably, Amigo needs both.
Anyone who cannot currently afford their regular costs of living (middle class or not) cannot, by definition, afford to take on additional credit. There may be brief respite but as soon as the loan funds run out (which would happen well before it had been repaid) the customer would need to borrow again and then you’re back in the same cycle or relending. This is what went so badly wrong before.
Danny said Amigo will be using open banking. If Amigo sees that applicants can’t manage their current commitments, it cannot lend to them.
The only market I can see is in debt consolidation. But even that would only be beneficial for the small percentage of people whose existing debts are at a higher interest rate than Amigo will offer.
Franky, you make a very good point. The economic landscape has been transformed in the last few months. Projections that may have been accurate at the start of the year are now hideously out of date.
The cost of living crisis is going to squeeze Amigo’s target market more than most. Huge price rises - particularly energy, which is due to increase substantially in October, January, and April - will drastically reduce the number of households who Amigo can lend to affordably.
So, quite apart from the question of how much of a dilution the shareholders will vote for, the other major issue facing Amigo is - who on earth will they still be able to lend to?
Amigo is authorised and regulated. It voluntarily stopped lending in November 2020 and there is no regulatory block on resumption of lending as I understand it.
Amigo’s exec team is choosing to wait for some magic smoke signal from FCA - but I don’t think we’ve been told what that requires.
Largey, actually no agenda from me. I’m not invested and won’t be investing.
For me, Amigo is an exercise in learning and understanding what’s really going on in this firm and this market. I think I’m able to do that more clear sightedly than those who have a vested interest in the business.
I have always said that the pain needed to be shared between claimants and shareholders. I’ve never advocated shareholder wipeout. I think the balance of the scheme has tipped too far against shareholders with the 19:1 dilution (compared to a 58% dilution for claimants). So the most interesting question for me is whether shareholders will vote for it.
Totally agree TF. The FCA has its faults but the attempts (spearheaded by Stevielad) to present what’s happened at Amigo as solely a failure of the regulator - ignoring the greedy malpractice of executives and board members and a failure of oversight by shareholders - is pretty laughable.
The key RNS isn’t about lending starting - we know that’s happening soon and won’t yet be at a game changing volume until after the rights issue.
The key RNS is about the dilution - how much is Amigo going to try and squeeze out of shareholders? Will it be the £70m indicated last December and, if so, will shareholders vote for that raise and cough up 15p per current share?
Ynwa - Shareholders have an important governance and oversight role.
Unfortunately, too many shareholders are happy to jump into a share with a sense of entitlement to profits but without really understanding what the firm they part-own is actually doing.
The issues plaguing this company have been out in the open for at least two and a half years, probably sooner, and all the ongoing **** ups since early 2020 reinforce the lack of grip at Amigo (for those who hadn’t already cottoned on).
So if you’ve bought any shares in that time, you could and should have known what you were getting into.
If you’re still invested after the first scheme was rejected, you’ll have held on the clear basis that shareholders rank at the bottom of the list, behind redress claimants and secured creditors.
So I’m not sure what you’ve got to grumble about…
OK, they can raise some cash by taking on debt rather than the rights issue. But would that limit the dilution to less than 95%? How does that square with the scheme documents and court judgment?
Basically, does the firm have any wriggle room to do a smaller dilution?