Amigo Loans warns its future is still under threat despite £15m profits after being hit by £338m compensation bill for mis-selling claims
- Firm lends to people with poor credit score but with friend or relative guarantor
- But it has been battered by complaints from rapidly shrinking customer base
- Rule changes meant thousands of people had been mis-sold loans by Amigo
- Bournemouth-based company says complaints could cost £338m to settle
Britain’s largest guarantor lender Amigo Loans warned today that its future was still under threat despite reporting a tenfold increase in profits to £15million.
The Bournemouth-based company lends to people with a poor credit score if they have a friend or family member willing to make repayments if they cannot.
But it has been battered by complaints from its rapidly shrinking customer base, after rule changes meant thousands of people had been mis-sold their loans.
Amigo, which has been wrangling over a compensation scheme with the Financial Conduct Authority (FCA), estimates the complaints could cost £338million to settle.
But it added this charge to last year’s accounts, and therefore booked a £15million pre-tax profit in the first quarter of this year, up from £1.4million a year earlier.
Bournemouth-based company Amigo Loans lends to people with a poor credit score if they have a friend or family member willing to make repayments if they cannot
Nevertheless it only goes a small way to plug the massive hole from last year.
At that point Amigo booked a potentially-crippling £284million loss, but much of this comes from the cost of complaints, so the money has not yet gone out.
Amigo chief financial officer Mike Corcoran said said there was a ‘material uncertainty over the group’s ability to continue’
Now the guarantor loans company is trying to ensure that the full amount never needs to be paid out, which could allow it to stave off collapse.
Chief financial officer Mike Corcoran said: ‘A material uncertainty over the group’s ability to continue as a going concern remains.’
Amigo has calculated that customer complaints could cost it around £338million – money it does not have.
In a bid to stave off collapse, it is trying to hammer out a deal with its customers and the FCA.
Already one such deal has been thrown out of court after the FCA objected.
Amigo argues that a deal, called a scheme of arrangement, would be the best option, and would ensure that all customers get at least some compensation.
Britain’s largest guarantor lender Amigo Loans is based in this building in Bournemouth
If Amigo was to be forced into administration, the company argues that people who have bought its bonds – not customers – would be first in line to get money out of the business.
Following that, some customers would have their complaints settled in full, but many would be left without any money at all.
Revenue dipped by a third to £32.5million in the first quarter of the year as the number of customers fell by 41 per cent to 118,000.
Mr Corcoran said: ‘The extremely challenging situation facing Amigo, resulting from the significant liability for compensation payments for historical lending, provides the context for our first-quarter results.
‘Within this context, the performance of the business in the first quarter has been better than anticipated.’
Amigo’s share price is shown from June 2018 when it floated on the London Stock Exchange
On Tuesday, the future of Amigo was said to be ‘under threat’ after its delayed results for the year to March revealed a £234million loss.
The lender admitted it had still not agreed on a new redress scheme, and added that there were ‘material uncertainties’ regarding its survival.
Chief executive Gary Jennison also said earlier this week that the firm was hoping to launch an ‘Amigo 2.0’ when the complaints matter was resolved.
This would see the business focus on prudent lending and giving customers interest rate reductions if their payments were regularly received on time.
The company’s shares rose by about 3 per cent to 8.13p in early trading today.
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