August 29, 2019 / 12:01 PM / 25 days ago

Shares in sub-prime lender Amigo plunge as loan growth slows

(Reuters) - Shares in Amigo Holdings (AMGO.L) more than halved to a record low on Thursday after the British subprime lender reported a rise in first-quarter impairments and costs and warned of slower annual growth in its loan book.

Amigo’s shares fell 53.6% and were trading at 70.7 pence at 1607 GMT. In June last year the company priced its shares at 275 pence in its stock market debut.

Amigo, which issues loans typically guaranteed by a borrower’s family or friends, said a change in economic outlook and the potential for regulatory change had led it to take a more cautious approach to lending, with increased provisioning.

“We are therefore resetting expectations for the current financial year,” the company said in a statement, with broadly flat loan book growth marking a significant departure from the previous low-teens net loans growth forecast for the medium-term.

Sub-prime lenders have grown rapidly in Britain since the 2008 financial crisis as banks pared riskier lending. But the high interest rates charged for loans made to more vulnerable borrowers has fueled a public and political backlash and put pressure on regulators to tighten supervision.

Labour lawmaker Stella Creasy last year called for an interest rate cap on all forms of credit, calling companies like Amigo and Provident Financial (PFG.L) “legal loan sharks”.

Bournemouth-based Amigo offers guaranteed loans of up to 10,000 pounds ($12,277) to borrowers with weak credit histories at an average annual percentage rate of 49.9%.

“In short, it is not a pretty update – with a material miss on impairments and operating costs as well as the new CEO, Hamish Paton, taking out the red pen to current year guidance,” Goodbody analysts said. Paton was appointed in July.

“DARK DAYS AHEAD”

FTSE 250 lender Amigo reported an impairment to revenue ratio of 30.5% for the quarter ended June 30 from 25.4% a year earlier.

Amigo said the reasons for the increase in impairments included operational challenges within collections, the impact of a higher number of loan applications and more cautious accounting assumptions around the economy.

“The market was already worried about regulation becoming tighter for the guarantor loans market and today’s update from Amigo makes matters even worse, suggesting it has some very dark days ahead,” said Russ Mould, investment director at AJ Bell.

The cost to income ratio increased to 23.4%, hurt by a rise in investments and a provision for complaints.

RBC and JPMorgan analysts cut their target price on the stock on Thursday.

Reporting by Noor Zainab Hussain and Tanishaa Nadkar in Bengaluru, editing by Sinead Cruise, Jane Merriman, Deepa Babington, Kirsten Donovan

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