Amigo Loans share price crashes over 25 percent as firm admits it faces collapse

Amigo Loans share price crashes over 25 percent as firm admits it faces collapse

November 29, 2021

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The sub-prime lender was banned by the Financial Conduct Authority (FCA) following complaints that customers had been mis-sold loans they couldn’t afford. In its half-year results out today it warns it will face going into administration unless a new rescue plan can be agreed after the High Court rejected previous proposals. The company claims: “Without an approved Scheme to address the significant liability that has arisen from historical lending, Amigo has an insolvent balance sheet and faces administration.” Amigo’s first scheme was rejected in May for not offering enough compensation to customers while being too generous to shareholders.

Customers would have received around five to 10 percent of their full claim with a cap on the total refund pool.

Since then an independent Customer Committee (ICC) has been set up following recommendations from High Court judges to try to give customers a greater say.

A new offer has now been submitted to the ICC.

According to today’s results Amigo has £159m set aside for customer complaints compensation.

Whilst the details are not yet public Chief Executive Gary Jennison said: “We’re pleased the New Business Scheme, contingent on new lending restarting and a successful equity raise, will offer a markedly better cash contribution compared to the original Scheme developed a year ago.

“Obviously a lot has changed in the last twelve months and the increased contribution is largely driven by the clarity we now have around our future business model and the level of collections and impairments.

“Fortunately for customers the impact of Covid has been far less severe than we, and the market, thought when forecasts were made in the eye of the storm.”

Amigo previously came to dominate the payday lending market after leading lender Wonga was banned by the FCA.

Amigo had previously tried to distance itself from rivals with a business model offering lower rates to people who could put up friends and family to guarantee any missed payments.

In its results today the company revealed since its ban on lending revenue had fallen 38.8 percent as its loan book shrank.

Amigo’s share price has crashed on the results falling 26 percent.

Further concerns to shareholders may also come from the company’s plans for an equity raise.

The firm admits this will see a “material dilution” for existing shareholders’ stakes.

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However Mr Jennison warned it was the only way forward explaining: “We have noted on many occasions, we are an insolvent business so there are no easy paths if we want to avoid administration and the only other options are for a managed wind-down or insolvency, both of which are worse outcomes for shareholders and customers.”

He added: “We really hope as many existing shareholders as possible will invest in what we believe is a great new lending proposition, which aims to address the growing and pressing need in the market for a mid-cost product that helps customers progress to mainstream financial inclusion.”

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