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Provident Financial Sees £1.7bn Wipeout After Second Warning

British sub-prime lender Provident Financial has plunged into a crisis after a series of setbacks. The FTSE 100 company which offers loans to people who are cash strapped has issued its second profit warning in two months.

The company said that it expects to record losses in the range of £80 million to £120 million after its debt collection rates dropped to 57 percent versus the 90 percent seen in 2016.

Provident Financial services around 2.5 million customers, most of whom may not qualify for regular bank loans and are therefore called sub-prime.

The sharp drop in the company’s performance comes after the failure of an organizational restructure initiative in its home credit division which involved cutting down the number of self employed debt collectors working for it and a shift to app-based service, which proved less successful than expected.

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The company’s chief executive Peter Crook is stepping down with immediate effect and Manjit Wolstenholme will be taking over by assuming the role of executive chairman. Additionally Provident Financial has announced that it is facing an investigation by UK regulator, the Financial Conduct Authority (FCA) with regards to a product that enabled people to freeze credit card debt.

The combination of these events resulted in the company’s share price dropping by nearly 66 percent going from £17 to 589.5 pence in a day’s trading, leading to nearly £1.7 billion of its stock market value being wiped off. Financial analysts have expressed concern at the rapid deterioration.

In a statement Neil Wilson, analyst of ETX Capital said

There is no easy way out from this hole. Management will take a long time to regain credibility. The performance is abysmal and significantly worse than management ever could have imagined… Is this the end? There must be some sense that things cannot get any worse.

In a bid to save cash, the company has said that it is cancelling the interim dividend it had announced just a month ago. Analysts said that this move could help the company save around £200 million. Provident stated that it is planning to conduct a thorough review of its home credit's operations.

Provident stated that its other businesses which includes Vanquis Bank, its sub-prime car loan business Moneybarn as well as consumer credit unit Satsuma are all operating as expected. The FCA probe however relates to a product sold by Vanguis Bank. Provident has agreed to halt all sales of the affected product until the outcome of the probe is known.

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