Provident Plunges as FCA Starts Probe Into Car Finance Arm

(Bloomberg) -- Provident Financial Plc shares and bonds fell in London trading after the Financial Conduct Authority started an investigation into the subprime lender's car finance division.

The FCA is examining Moneybarn “in relation to the processes applied to customer affordability assessments for vehicle finance and the treatment of customers in financial difficulties,” Bradford, England-based Provident Financial said in a statement on Tuesday. The “company will work collaboratively with the FCA.”

The shares fell as much as 20 percent to their lowest in two months while the company's 250 million-pound ($335 million) 8 percent 2019 notes dropped the most since August. Provident Financial, which disclosed a separate regulatory probe into its credit-card unit earlier this year, has previously forecast losses at its doorstep-lending business after a botched roll-out of new technology and scrapped its interim dividend. Its stock is down about 75 percent this year.

“For some companies, it never just rains but pours and this seems to be the case for Provident,” said Gary Greenwood, an analyst at Shore Capital, who downgraded its recommendation to hold from buy. “There is now simply too much uncertainty to justify us maintaining a positive stance on the shares.”

Moneybarn provides car and van financing to customers who have struggled to access money elsewhere because of a poor credit score or the lack of a borrowing history, according to its website. The division contributed about 9 percent of Provident's total adjusted pretax profit last year.

In November, senior independent director, Malcolm Le May, was named interim executive chairman, becoming the third person to lead the company in three months. He succeeded Manjit Wolstenholme, who died suddenly on Nov. 23, while Chief Executive Officer Peter Crook resigned in August.

“We see this morning's announcement as a further red flag in the context of PFG's investment case,” wrote John Cronin, an analyst at Goodbody in a note to investors. “This news comes as a further stumbling block -- and swiftly follows the passage of the executive chairman.”

The stock was down 13 percent to 765 pence at 10:49 a.m. in London, giving the company a market value of 1.1 billion pounds. At its peak in 2015, the shares traded at 3,634 pence apiece.

Provident serves about 2.5 million customers, many of them unemployed or on welfare. Extending credit to low-income households had been good to Provident, which saw other banks get bailed out in the financial crisis. The company was started in 1880 by Joshua Waddilove, a philanthropist and social reformer who saw extending door-to-door credit as a way to alleviate poverty.

--With assistance from Tom Beardsworth and Hannah Benjamin

To contact the reporter on this story: Stefania Spezzati in London at sspezzati@bloomberg.net.

To contact the editors responsible for this story: Ambereen Choudhury at achoudhury@bloomberg.net, Jon Menon, Andrew Blackman

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