Provident to close its home loan arm when it exits the mortgage market
By Muvija M
(Reuters) – Provident Financial on Monday called for quitting its home loan division, putting 2,100 jobs at risk, as the pandemic hit the recovery efforts of a business that survived the Wall Street crash of 1929 and to the global financial crisis.
The company, a risk lender since its inception in 1880, said it plans to put the business into controlled liquidation or consider a sale if there is interest. The exit is expected to cost Provident up to £ 100million ($ 141million).
Provident shares slipped 6% down the UK mid-cap index at 08:40 GMT.
Provident had tried to revive the company after botching a redesign in 2017 when it sought to replace its army of independent home collection agents with direct employees.
But its efforts, including a plan to bring the unit to balance last year, have been derailed by the COVID-19 crisis, which has hammered lending volumes and driven up costs.
UK subprime lenders, who serve low-income households with poor credit profiles, have struggled to cover financing costs during the pandemic, preventing them from meeting growing demand for loans from their customers.
“The mortgage market, in our opinion, is in irreversible decline,” Provident CEO Malcolm Le May said on a media conference call.
The increase in complaints from claims handling companies, the financial impact of COVID-19 on the lending division and the changing regulatory environment have made the company commercially unviable, he said.
Several of these companies, including payday lenders Wonga and Quickquid, have closed in recent years due to complaints and a regulatory review of their business model.
“MORE SUSTAINABLE MODEL”
Provident, who fended off a takeover attempt by small rival Non-Standard Finance in 2019, said it plans to build on its existing expertise in unsecured personal loan products in 2021, in the segment ” average “market.
The company, which has a banking license, said the unsecured lending business was an important step towards its plans to become a larger banking group for the financially underserved client.
Panmure Gordon analysts said: “This (concentration) implies a lower debt growth rate but a more sustainable model.”
Goodbody analyst John Cronin said the new initiative would likely be channeled through Provident’s credit card company Vanquis.
Provident presented a £ 50million plan in March to address an increase in complaints and claims against the at-risk unit and said the company was also under a regulatory investigation into conduct issues .
A UK court has cleared the settlement plan, with a meeting of the company’s creditors scheduled for July, Provident said Monday.
Provident recorded a pre-tax loss of £ 113.5million in 2020 compared to a profit of £ 119million a year ago.
($ 1 = 0.7107 pounds)
(Report by Muvija M in Bengaluru, edited by Jane Merriman, Sayantani Ghosh and Emelia Sithole-Matarise)