December 5, 2017 / 7:49 AM / a year ago

Provident hit again as UK regulator opens new probe

(Reuters) - Britain’s financial watchdog has launched a second probe into Provident Financial’s lending practices, dealing a fresh blow to a company struggling to revive its door-to-door operations and sending its shares down as much as 16 percent.

FILE PHOTO: The logo of the new Financial Conduct Authority (FCA) is seen at the agency's headquarters in the Canary Wharf business district of London April 1, 2013. REUTERS/Chris Helgren

Provident said on Tuesday the Financial Conduct Authority (FCA) had launched an investigation into Moneybarn, its car and van financing arm, focusing on how it assesses whether customers can afford to take on credit and how it deals with borrowers who cannot repay loans.

The FCA is already investigating Provident’s Vanquis Bank.

Sub-prime lenders such as Provident Financial have seen rapid growth in Britain since the financial crisis, as banks cut back on risky lending and years of austerity have forced poorer people to borrow more.

But the high interest rates charged for loans has fuelled a public and political backlash, leading to a regulatory crackdown.

Provident has also suffering from a bodged reorganisation of its door-to-door lending business that led to a profit warning, the departure of its CEO, and a share price plunge.

Adding to its problems, it is seeking a permanent executive chairman after the sudden death of former investment banker Manjit Wolstenholme, who took the helm earlier this year charged with turning round the business.

“We see this morning’s announcement as a further red flag in the context of PFG’s (Provident Financial Group’s) investment case,” said Goodbody analyst John Cronin.

Shares in Provident, which provided loans through the Wall Street crash of 1929 and both world wars, fell as much as 15.9 percent to 740.5 pence, the biggest drop on Europe’s Stoxx index. They have fallen almost 70 percent since June.

Provident said the FCA had already discussed certain processes with Moneybarn that had led to a number of “process improvements”, adding it would work with the watchdog to investigate the remaining concerns and fix any outstanding related issues “as soon as practicable”.

Jefferies analysts have a forecast for Moneybarn to account for 40.2 million pounds of a group underlying pretax profit of about 164 million pounds in 2018.

Provident’s share price plunge has proved lucrative for some hedge funds, which have been building short positions.

Eleven hedge funds hold short positions above 0.5 percent, according to regulatory filings, including London-based Lansdowne Partners and Marshall Wace as well as U.S. computer-driven managers AQR Capital Management and WorldQuant.

Spokespeople for Lansdowne and Marshall Wace declined to comment on Tuesday, while the other firms could not be immediately reached for comment.

Provident’s two biggest shareholders are Invesco Asset Management and Woodford Investment Management, which between them own over 40 percent of the group. The shareholders did not immediately reply to requests for comment.

Reporting by Noor Zainab Hussain in Bengaluru; Additional reporting by Maiya Keidan, Carolyn Cohn and Simon Jessop in London; Editing by Jason Neely and Mark Potter

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