Amigo Loans warns of £ 35m claims, pays dividends and finalizes sales negotiations

Amigo’s shares fell more than 20% after it warned that it had seen a “significant increase in customer complaints.” (Friend Loans / YouTube / Screenshot)

Shares of the high-risk lender Amigo Loans (AMGO.L) crashed on Monday after the company warned of a surge in complaints, scrapped its dividend and said a potential buyer of the company had left.

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

The company, being investigated by the Financial Conduct Authority (FCA), agreed to a deal with the regulator to remove the backlog before the end of the month, but said the cost of doing so would be around 35 million pounds ($ 44 million). Amigo cautioned that provisions to cover complaint resolution could also “increase substantially.”

As a result, Amigo said that it would not recommend a final dividend this year.

Read more: Amigo, a subprime lender, faces an investigation by a watchdog

Meanwhile, talks to sell the business have also ended.

Amigo invited bids 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.” The talks got serious with a bidder, but the prospective buyer has now walked away, “given the current market environment.” The other offers have also evaporated, so Amigo has called on time in his sales process.

Amigo shares fell more than 20%.

Amigo Loans shares sold sharply in Monday's update.  Photo: Yahoo Finance UK

Amigo Loans shares sold sharply in Monday’s update. (Yahoo Finance UK)

The sheer amount of bad news on Monday is the latest blow for Amigo, who has been embroiled in a fierce battle with its founder and largest shareholder over the management of the company.

James Benamor, who resigned as CEO in 2016, first publicly expressed concern about how the company was being run. in an extensive blog post in March. He claimed the company was “committing suicide in slow motion” by failing to cope with recent changes made by UK regulators.

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

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

“I have decided to resign now to make it very clear to everyone that the assertions made by the Richmond Group about the motivations of me and the board to hold onto our seats for our own purposes are completely untrue,” Wilcke said in a statement.

“The EGM [extraordinary general meeting] the vote is about the Relationship Agreement and compliance with regulatory obligations, and nothing else. I feel capable of resigning at this time, as the two key issues that keep me on the board are [sale process] and the Richmond Group Relationship Agreement dispute is now resolved. “

READ MORE: UK government plans stricter rules on foreign acquisitions

Amigo is a high-risk lender who makes personal loans to people with low credit scores as long as they have a guarantor – a friend or relative who agrees to make repayments on their behalf if they cannot pay and fall behind.

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

The FCA opened an investigation into Amigo last week, investigating “If Amigo’s creditworthiness assessment process, and its governance and oversight, complied with regulatory requirements.”

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