Amigo stocks tumble as they’re on the sidelines: struggling company’s stocks drop as much as 53%
- After a temporary suspension, the struggling company’s stock resumed trading
Amigo stocks halved in value yesterday when their fate was unsettled.
After a temporary suspension, the struggling company’s stock resumed trading, immediately falling as much as 53 percent.
The guarantor’s shares had been frozen as they awaited the outcome of a tense legal battle designed to either save or ruin them.
But the freeze was lifted yesterday – although the court has not yet published its verdict.
Investors were shocked, and at close of trading, stocks fell 34.3 percent, or 8.08 pence, to 15.5 pence.
Goodbody analyst John Cronin said investors were concerned “that Amigo could go into liquidation”.
In the face of a spate of mis-sale claims, the company is seeking permission from the high court to cap compensation payments to nearly a million customers.
This would mean that individuals making successful claims would only get between 10 and 23 percent of their debt.
The plan received unlikely support from Amigo’s customers, who fear that if the lender collapses, they will get nothing at all.
In a dramatic twist, however, the Financial Conduct Authority (FCA) pounced on the rescue plan at the last minute.
The watchdog argues that customers shouldn’t be wrongly losing and that Amigo’s investors need to step in to fully fund the claims. But the intervention has cast doubt on the company’s future after the bosses warned that if the court ruling doesn’t go their way, the lender will “default in a very short time”.
The company moved to temporarily suspend its shares during a court hearing on Wednesday.
But after no immediate verdict that day and no further news on Thursday, Amigo lifted the suspension yesterday.
In its announcement, the company stressed that it “does not know any inside information”, has not received a judgment and does not know when one will be issued. It did not rule out the possibility of applying for a further suspension in the future, depending on the circumstances under which the final judgment was given.
Amigo, once described by MPs as a “legal loan shark”, gives loans to customers with poor credit ratings. It charges 49.9 percent of the annual percentage rate and borrowers need a family member or friend to act as sponsor. The company was forced to put its compensation system in place last year when the affordability test rules changed.
Thousands of customers – backed by Claims Management Companies (CMCs) – complained that they had received loans that they could never repay.
The indemnity bill rose quickly, causing Amigos bosses to realize they could not cover the total projected cost of £ 150m.
Instead, the company developed a compensation system worth up to £ 35 million.
However, the plan must be approved by a High Court judge.
Against its proposals, the FCA has stated that Amigo should attract its shareholders and bondholders for more money so that customers can get the full amount they are due.
Gary Jennison, CEO of Amigo, has dismissed this proposal, stating that with only two large institutions and 8,000 savers on his shareholder register, he would have little chance of success.
Amigo’s troubles emerge after rival Provident Financial announced it was closing its 141-year-old lending business on its doorstep because its own complaints resulted in its no longer being profitable.
Provident Financial has proposed its own similar £ 50 million compensation scheme for bad sales of receivables.