Provident Financial has announced a £331 million investor cash call after being ordered to pay almost £171 million in fines and compensation over mis-selling at its Vanquis Bank arm.
The Financial Conduct Authority (FCA) fined credit card lender Vanquis £2 million and ordered it to pay £168.8 million in compensation for failing to disclose charges of its popular repayment option plan (ROP).
Provident announced the rights issue to boost its bruised balance sheet and cover the cost of the Vanquis settlement, as well as an expected £20 million hit from an ongoing investigation into its car financing arm, Moneybarn, over affordability checks.
The rights issue will raise £300 million after £31 million in expenses, Provident said.
Full-year results released alongside the settlement showed the hit and Moneybarn penalty pushed Provident into the red in 2017, leaving it nursing losses of £123 million against profits of £343.9 million in 2016.
With this stripped out, underlying profits were still hammered last year, down 67% at £109.1 million, as the group was also knocked by disruption after it launched a new home credit model in July with the aim of moving from self-employed door-to-door agents to full-time “customer experience managers”.
Provident said the switchover was “poorly executed”.
But shares surged 34% having tumbled on Monday ahead of the expected rights issue announcement
On the ROP mis-selling, the FCA said Vanquis had committed “very serious breaches”.
Mark Steward, director of enforcement and market oversight at the FCA, said: “Vanquis failed to make sure customers were informed about the full cost of the ROP when it was offered to customers.
“Most Vanquis customers chose the ROP to help manage their credit without realising instead that the product might lead to their indebtedness increasing.”
But he added Vanquis had “decided now to do the right thing by acknowledging the wrong-doing and offering to compensate its customers”.
The group is attempting to bounce back from a torrid 2017, revealing earlier this month that Malcolm Le May had joined as chief executive following stints at Barclays and UBS.
The company had a difficult year in which it has issued a string of profit warnings, saw its shares tank and announced the death of executive chairman Manjit Wolstenholme.
Its woes have been compounded recently after the launch of the Moneybarn investigation.
Mr Le May said: “When I became group chief executive, I stated my key objective was to execute a turnaround of the group.
“Today we have made progress on that objective by agreeing a resolution with the FCA in relation to Vanquis Bank and we now have a clear view on the estimated cost of the FCA investigation of Moneybarn.”
He said the group would continue to “rebuild trust with our customers, regulators, shareholders and employees” in 2018, but admitted there was “still much to do” in its recovery.