Amigo Loans warns of £35m complaints hit and cancels dividend as sale talks collapse

Oscar Williams-Grut
Senior City Correspondent, Yahoo Finance UK
Shares in Amigo dropped over 20% after it warned it had seen a 'significant increase in customer complaints'. (Amigo Loans/YouTube/Screenshot)

Shares in troubled subprime lender Amigo Loans (AMGO.L) plummeted on Monday after the company warned of a surge in complaints, scrapped its dividend, and said a prospective buyer for the business had walked away.

Amigo Loans said in a statement on Monday it had seen a “significant increase in customer complaints in recent weeks”.

The company, which is being investigated by the Financial Conduct Authority (FCA), has agreed a deal with the regulator to clear the backlog by the end of the month but said the cost of doing this would be around £35m ($44m). Amigo warned that provisions to cover complaint settlements could also “material increase”.

As a result, Amigo said it would not be recommending a final dividend this year.

Read more: Subprime lender Amigo faces watchdog investigation

Meanwhile, talks to sell the business have also ended.

Amigo invited offers for the business in January and said it received several that were “materially above where Amigo's shares were trading at the time they were received”. Talks got serious with one bidder, but the prospective buyer has now walked away, “given the current market environment”. The other bids have also evaporated and so Amigo has called time on its sales process.

Shares in Amigo dropped over 20%.

Amigo Loans' shares sold-off sharply on Monday's update. (Yahoo Finance UK)

Monday’s slew of bad news is the latest blow for Amigo, which has been caught in a fierce battle with its founder and biggest shareholder over the management of the company.

James Benamor, who stepped down as chief executive in 2016, first publicly raised concerns about how the company was being run in a lengthy blogpost in March. He claimed the company was “committing slow-motion suicide” by failing to get to grips with recent changes made by UK regulators.

Benamor has been pushing for the removal of the entire board and management team of Amigo. Amigo took the unusual step of seeking a High Court injunction against Benamor and his company, The Richmond Group, to try and stop him voting to oust the entire board. Amigo claimed the action would violate a “Relationship Agreement” included in its stock market IPO documents and could provoke the wrath of the regulator. The board is calling for shareholders to vote against Benamor’s proposals at a meeting later this month.

The company said on Monday that chairman Stephen Wilcke had served his resignation over the weekend as a result of the saga.

“I have chosen to resign now to make it crystal clear to everyone that the assertions made by Richmond Group about the motivations of myself and the board as clinging to our seats for our own ends are completely false,” Wilcke said in a statement.

“The EGM [extraordinary general meeting] vote is about the Relationship Agreement and compliance with regulatory obligations, and nothing else. I feel able to resign at this point in time as the two key matters keeping me on the board being the [sale process] and the Relationship Agreement dispute with Richmond Group are now settled.”

READ MORE: UK government plans tougher rules on foreign takeovers

Amigo is a subprime lender that gives people with poor credit ratings personal loans as long as they have a guarantor — a friend or family member who agrees to make repayments on their behalf if they can’t pay and fall behind.

The company last year lent around £700m ($854m) to 224,000 customers in the UK. The loans carry an annual percentage interest rate of 49.9%. This is a lower interest rate than traditional payday lenders but higher than a regular bank loan. It markets itself as “an alternative to payday loans.”

The FCA last week opened an investigation into Amigo, probing “whether or not Amigo's creditworthiness assessment process, and the governance and oversight of this, was compliant with regulatory requirements.”