Amigo loans could do with a rich friend right now
Amigo loans may well wish that they had one now as any analysis of their current position spells trouble.
James Benamor, the company’s original founder and owner of majority shareholders, The Richmond Group, who hold 60.6% of the business, returned to the board in December. This prompted the resignations of then chief executive Harris Paton, the chairman Stephan Wilcke and the chairman of the remuneration committee Clare Salmon.
The shares themselves have fallen in value by approximately 80% over the previous 12 months as the company revealed that its bad debts from missed repayments had risen to £45m in the last half of 2019 alone.
In order to stem future losses from their 222,000 customers, Amigo confirmed it would be hiring more staff to work in its collections department to chase future payments which might worry investors if they suspect that there’ll be more to come in future months.
The company hasn’t had the best press recently with MP Wes Streeting describing them as “legal loan sharks” in his position on the Treasury Select Committee.
Amigo offers high-interest loans to customers primarily with poor credit history. Their model relies on these borrowers nominating family members or friends as guarantors to pay back the debt if they fall behind in repayments – effectively providing a reliable back-up option to recoup any missed payments.
With a maximum interest rate of 49.9%, a borrower (or their guarantor) taking an initial £4,000 loan over three years would repay £7,026.
A company spokesperson said: “While Amigo remains confident in the robustness of its approach to lending decisions, we are concerned that there may be increased pressure on our business and a continual evolution in the approach of the Financial Ombudsman Service”.
The last comment was telling as 226 customers complained to the Financial Ombudsman Service between Mar and Sep 2019 which found in the customers favour in 59% of the cases. It suggests that they might be expecting more negative decisions to go against them in the near future.
This follows on from a review by the Financial Conduct Authority (FCA) in November that focused on whether guarantors truly understood what their role in an Amigo agreement entailed.
Amigo told the London Stock Exchange that the review identified areas where its customer journey could be enhanced including “increasing the explanation of key information provided to potential guarantors” and increased disclosure on the likelihood that named guarantors could be called to make payments and had the ability to do so.
Meanwhile, Amigo has announced a strategic review and appointed advisors to look for a potential buyer for the whole company. They’ve also indicated that they’d consider other options along with a sale including selling parts of the group and/or potentially de-listing shares.
Analysts will look at the news and financial performance conclude that The Richmond Group sees little chance of value generation in the near term – which would raise further questions about the viability of the business or the short-term loan market as a whole.
Good friends will also tell you some hard truths you might not want to hear. If your business is under performing and could do with some friendly advice, then get in touch with us.
Our expert advisors will arrange a free, convenient initial session where we can better understand your unique circumstances and help draw up a realistic way to get the business back on its feet depending on what you want to do next with your career and your life.