Provident Financial Expecting Wipeout of Stock Market Value of £1.7 Billion

Provident FinancialProvident Financial which is a British sub-prime lender has plunged into severe crisis after a series of setbacks. The FTSE Company that provides loans to cash-strapped people has issued its second profit warning in two months.

The company anticipates recording losses in the range of £80 to £120 million after the debt collection rates have dropped to 57% as compared to 90% during last year.

The company is having more than 2.5 million customers out of which many of them don’t qualify for the regular bank loans and are hence called subprime.

The drastic reduction in the performance of Provident Financial has come after the setback of an organizational restructure initiative in its home credit division. It involves cutting down the number of self-employed debt collectors who are working for it and shift to application based service that resulted to be less successful than anticipated.

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Peter Crook who is the current Chief Executive of the company would be stepping down from his post with immediate effect. His place will be taken by Manjit Wolstenholme who will discharge the role of Executive Chairman. In addition to this, the company has announced it is facing one investigation from the UK Regulator, the Financial Conduct Authority (FCA), related to the products that allow people to freeze their credit card debt.

All the aforementioned events have led to a decline in the share prices of Provident Financial by approximately 66% from £17 to 589.5 pence in day’s trade that has to lead to a wipeout of nearly £1.7 million of the stock market value. This rapid deterioration of the company has raised a lot of concern among the financial analysts.

Neil Wilson who is an analyst at ETX Capital has made the following statement:

There is no easy way out from this hole. Management will take a long time to regain credibility. The performance is abysmal and significantly worse than management ever could have imagined… Is this the end? There must be some sense that things cannot get any worse.

In order to save cash, Provident Financial has cancelled its interim dividend that was announced last month. Analysts are hoping this move would save the company to a tune of £200 million. The company is also looking forward to conducting a deep investigation of its home credit operations.

According to Provident Financial, its other business that includes consumer credit unit Satsuma, subprime car loan business Moneybarn and Vanquis Bank are all working perfectly. The investigation from the FCA is probably related to a product sold by Vanquis Bank. Until the result of the investigation is probably known, the company has agreed to stop all the sales of that affected product.

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