Amigo shares plummet 34% amid fears over compensation caseMay 21, 2021
Investors concerned sub-prime lender could collapse if a UK court rejects cap on customer payouts
Last modified on Fri 21 May 2021 12.24 EDT
Amigo shares have fallen more than 34% in one day, amid fears that the sub-prime lender could collapse if a controversial proposal to cap customer compensation claims is rejected by a UK court.
The lender temporarily suspended share trading on Wednesday, ahead of a final court hearing on the rescue scheme, which has been criticised by MPs, debt campaigners and the UK regulator for being unfair to some of the UK’s poorest borrowers. The share price fall happened after trading resumed on Friday morning, pending a final ruling.
Amigo has come under fire over concerns that many of its 1 million former and current customers who were mis-sold loans could receive as little as 5% to 10% of any successful claim, as part of plans to cap the compensation pool at a maximum £35m and 15% of profits over the next four years.
Campaigners have also objected to proposals that would give board directors the chance to earn £7m in long-term bonuses as part of the deal.
Amigo, which charges 49.9% interest and requires borrowers to provide a friend or family member to act as a guarantor, claims it is unable to keep up with the mounting costs of addressing customer claims through the UK’s financial ombudsman. Executives have said the company could collapse into administration if the scheme is rejected, resulting in minimal payouts for borrowers.
Amigo was founded in 2005 and came to prominence after the demise of its sub-prime rival Wonga in 2018. It was deluged with mis-selling claims last year after customers accused the business of failing to carry out basic financial checks.
While 74,877 of its creditors voted in favour of the scheme last week, compared with just 3,863 against, the proposal was thrown into doubt after the Financial Conduct Authority made a surprise decision to object to the scheme in court. The move spooked investors hoping the scheme would draw a line under expensive mis-selling claims.
It marked a U-turn for the regulator, which in March said that it would not oppose the plan despite concerns over how mis-selling complaints would be assessed by the company and a cap on payouts. However, the FCA presented those concerns during the final court hearing on Wednesday.
“We are now awaiting a judgment from the court,” the FCA said.
Jitters over the final decision sent shares as low as 12.8p on Friday, before recovering slightly to 15.87p. Amigo stock has nearly halved in value over the past two weeks.
John Cronin, a financial analyst at stockbroker Goodbody, said the price swing was “no surprise,” given that the judge did not give an immediate ruling as hoped, and instead left the company in limbo.
“Investors are presumably spooked by the fact that Amigo could fall into liquidation – and the judge’s decision was not the ‘slam dunk’ that investors thought it might be following a strong support show for the scheme from creditors.”
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