Watchdog gives Amigo Loans green light to resume lending following customer compensation backlash
Shares in the sub-prime lender Amigo Loans soared as much as 81 per cent this Monday after a financial regulator said the firm could resume lending subject to conditions and if its new business rescue plan was approved by the High Court.
Amigo’s stock took a beating last year after the High Court stated that it was “not satisfied that the court should sanction the scheme”, pushing back against Amigo’s original proposal to cap customer compensation claims.
The largest supplier of guarantor loans’ original scheme placed restrictions on borrowers’ compensation, and there were concerns that this would hit the poorest in society, resulting in criticism from MPs and campaigners.
In January, the company warned of collapse if the new scheme to pay back customers and restart lending is not approved.
The embattled lender announced plans to raise £97m to compensate customers and £15m to restart lending, warning that the company will enter a wind down scheme or insolvency if it does not receive approval.
Since Amigo Loans’ last proposed scheme was rejected by the High Court, the firm has been working with the Financial Conduct Authority (FCA) to get a fairer deal for Amigo’s customers.
In an announcement this morning, the watchdog said that the firm’s proposal represents an improvement on last year’s failed one and has the support of the Independent Creditors Committee that was set up to advance the best interests of those customers owed redress.
Not only does this confirm that the watchdog is happy with the new proposals, but it also gives the loan provider confidence that it may be able to start lending again.
The FCA sets out the conditions the firm would need to satisfy to be able to return to lending, which include it meeting the threshold conditions, testing of the firm’s new lending system being completed to the satisfaction of the FCA and the firm addressing any other issues that may arise.
If the firm were to return to lending, the FCA said it will continue to supervise it closely.
However, proposal has not yet been voted on by eligible creditors (eg customers) and the FCA reserves its rights to intervene if facts and circumstances change.
Gary Jennison, CEO of Amigo commented on the announcement: “We thank the FCA for providing this level of clarity about its position on the proposed Schemes of Arrangement. There still remain significant hurdles to overcome before Amigo can deal with its insolvent balance sheet but this information will help us move forward to the next stage in delivering the best outcome possible, given the circumstances, for our customers, creditors and other stakeholders.”
Sophie Lund-Yates, Lead Equity Researcher, Hargreaves Lansdown, told Morning Wire: “The FCA’s communication is undoubtedly a positive development for Amigo and paves the way for them to restart lending in the future. However it’s incredibly important not to get too carried away – one step in the right direction doesn’t mean Amigo is on an automatic path to recovery.”
“On a short term basis it’s true the shares have bounced significantly, but they are still down over 97% on an all-time basis, which highlights the challenges. Clarity from the FCA gives Amigo space to regroup, but the group needs to work hard to rebuild financial resilience.”