Profit warning, CEO gone, shares in freefall: Subprime lender Provident Financial is in crisis

LONDON – Shares in Provident Financial, a UK-based door-to-door lender, lost more than 74% of their value on Tuesday after the company cut its dividend, issued a profit warning, announced the resignation of its CEO, and announced the regulator is investigating part of its business.

Bradford-based subprime lender Provident warned investors it expects to make a loss of between £80 million and £120 million. Provident told investors in June to expect a reduction in profit of £60 million — but still a profit.

The huge reversal in fortunes is down to a big change to Provident's business that has gone awry. Debt collection rates plummeted from 90% in 2016 to 57% after the company changed from using self-employed agents to full-time "customer experience managers." Customers are also borrowing £9 million a week less.

The yield on the company's 10-year bond maturing in 2019 rose to 12.6% from 1.9% on Monday, according to the FT. Bond yields move inversely to prices meaning that the price of the bond has fallen sharply in the secondary market.

Provident offers door-to-door loans to subprime borrowers who would usually be turned away from traditional lenders. It also owns online lender Satsuma, which is advertised on TV.

The company says progress on adopting its new business model has been "too weak" and it has fallen "a long way short of achieving [its] objectives." It blamed IT system issues for some of the failings.

As if the collapse in repayments wasn't enough, Provident also announced on Tuesday that the Financial Conduct Authority is investigating repayment plans offered on the company's Vanquis credit card, Provident said in a statement on Tuesday. The product makes around £70 million of gross revenue annually.

The board scrapped the dividend and CEO Peter Crook decided to step down "with immediate effect." He has been replaced by Manjit Wolstenholme in the role of executive chairman.

Wolstenholme said in a statement:

"I am very disappointed to have to announce the rapid deterioration in the outlook for the home credit business. Protecting the group's capital base through withdrawing the interim dividend and in all likelihood the full-year dividend is the appropriate response to maintain the highly valuable franchises of Vanquis Bank, Moneybarn and Satsuma. My immediate priority is to lead the turnaround of the home credit business."

Shares are down 74.21% as of 12:24 p.m. UK time. Here's the chart:

The crash will come as a boon to short-sellers who have been circling the company. The Sunday Times reported last week that investment firms AQR, Systematica, and Lansdowne Partners all disclosed significant short positions in August to the markets regulator.

Provident's shares have been under pressure for several months. The share price is now at a five-year low: