Financial Times Article 20 July 202023 Aug 2020 19:49
Amigo Loans warned on Monday that there was “material uncertainty” over its ability to continue operating, as the UK subprime lender grapples with rising customer complaints, a regulatory investigation and the coronavirus crisis.
The company said it was confident it had “adequate liquidity” but cautioned that additional financing would be needed if customer complaints were higher than expected for a prolonged period, or if the Financial Conduct Authority forced the group to carry out a major remediation exercise.
This set of circumstances “represent a material uncertainty that may cast significant doubt on the group and company’s ability to continue as a going concern,” the lender said.
Amigo, which has been beset by turmoil since listing on London’s stock market in 2018, provides guarantor loans, a type of lending to people with weak credit histories who have a friend or family member that will step in if there is a default.
UK regulators are investigating the way it assessed customers’ creditworthiness after Amigo’s founder and majority owner, James Benamor, accused it of knowingly carrying out irresponsible lending. Amigo has denied the accusations.
In a statement on Monday, Amigo said there were “a number of potential outcomes” from the investigation, including a “significant fine” or mandatory back-book remediation exercise that would “reasonably be expected to exhaust the group’s available liquid resources.” The group added that such an exercise was “a possible outcome, but not the most likely outcome”.
A mandatory remediation exercise would force Amigo to go through its historic loans and potentially compensate customers.
Shares in Amigo dropped 20 per cent in morning trading on Monday.
The warnings came as Amigo published its long-delayed results for the 12 months to March 31 2020, when the company slumped to a loss of £27m. That compared with a profit of £89m in the previous year.
The decline was caused largely by a £127m provision to deal with a surge in customer complaints. Loan impairments as a percentage of revenue also jumped from 24 per cent to 39 per cent because of disruption caused by the coronavirus pandemic.
The company’s handling of the complaints is central to the recent conflict between Amigo and Mr Benamor, who founded the group in 2005. Mr Benamor was unsuccessful in an attempt to remove the company’s entire board but the dispute nonetheless led to the departure of its chairman and chief executive.
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