Sunday Times 7/10/078 Oct 2007 10:47
LAST week was a bloodbath for shares in debt-adviser groups. DebtMatters put itself on the block after it warned that competition and the hardening attitude of banks to individual voluntary arrangements (IVAs) had in effect scuppered its business model.
DebtMatters shares dived 73% on Monday. Shares in the rival Accuma plummeted 23%, those of market leader Debt Free Direct 29% and Debts.co.uk’s stock fell 21%. Debt Free Direct shares are down 65% from a year ago. Accuma has lost over 92%.
Debt Free Direct tried to put on a brave face, arguing it did not share concerns that IVAs were becoming unprofitable.
IVAs, where borrowers can write off a substantial portion of debt in return for set repayments, have boomed in recent years. They do have a role, but right now the industry looks decidedly shaky.
Some banks have refused to use IVAs. The Insolvency Exchange has made big changes to the criteria used by practitioners when they recommend IVAs. The British Bankers’ Association is screwing down the costs that IVA providers can charge.
There are similarities with the showdown a few years ago between accident-management groups and insurers. The IVA industry will be hoping that it, too, can reach a compromise, regroup and rebuild, but it will be a long slog.
I have warned before that shares in debt advisers are hugely risky. Last week underlined that the IVA market is toxic. Any investor foolish enough to have hung on should get out swiftly.