Blackfriar: CPP left in limbo as it awaits result of watchdog probe

Yesterday the York-based credit card and mobile phone insurer fell another 12 per cent to 105p after it said a major customer has ditched it.

CPP, founded more than 30 years ago, commanded a share price of 280p before it revealed the probe by the Financial Services Authority in March last year.

Almost one year on, and there’s still no sign that the City watchdog has made up its mind what penalty to impose on the firm – if any.

Barclaycard’s decision not to renew its contract with CPP shows what this uncertainty can do.

Barclaycard is one of the group’s top five customers – together they make up 55 to 60 per cent of its sales. Based on that measure, it could be worth around 10 per cent of CPP’s revenues.

New sales of ID and credit card protection with Barclaycard will cease, and with an average renewal rate of 75 per cent, about 25 per cent of this customer’s revenues will disappear each year.

CPP has not said what other customers – or business partners as it likes to call them – will do. Blackfriar suspects many are waiting to discover the depth and seriousness of the FSA probe before making a decision.

Banks will not wish to be associated with anything that could potentially damage their reputation.

Blackfriar cannot see CPP adding new UK business partners while the probe goes on – crucial if it is to set itself back on course to growth in the UK.

The FSA, which was found sorely wanting in the financial crisis, has been baring its teeth in recent months.

The FSA’s victory on payment protection insurance (PPI) forced banks to set aside huge sums to cover the mis-sold insurance, including a £3.2bn hit for Lloyds.

But its delay in reaching a decision has left CPP in limbo. Analysts reckon sanctions for CPP could range from a slap on the wrist to policy refunds and a fine.

Paul Stobart, CPP’s new chief executive who joined in October, must have confidence in the group and its business model to have taken the job.

He will be hoping the watchdog’s bark is worse than its bite.

Anyone who has read award-winning author Kate Atkinson’s book Started Early, Took My Dog will not have a great impression of the Merrion Centre.

In the novel, the Leeds shopping centre’s security chief witnesses a small child being dragged along by a known drug-using prostitute and offers her a big sum of money for the girl.

The novel casts Merrion as a place that’s at the very bottom of the retail food chain.

When the book came out a few years ago Blackfriar did mention it to Edward Ziff, chairman of Town Centre Securities, Merrion’s parent company.

Strangely enough Mr Ziff has never mentioned the book again.

Despite its bad press, Merrion continues to buck the downturn.

It saw a one per cent increase in footfall in the six months to December 31, with footfall rising 7.6 per cent during December.

Mr Ziff himself acknowledges that Merrion is never going to attract the more affluent customer.

But it is definitely cheaper than its rivals and new initiatives such as face painters and clowns are making it different.

While Merrion is never going to rival Meadowhall or White Rose, it has an important role to play.

For mid-size companies with serious growth ambitions, lack of access to finance has been a regular complaint over the past few years.

As this week’s missed Merlin lending targets prove, banks are still not feeling particularly generous to small and medium-sized firms (SMEs).

So a call from the CBI for better access to more varied sources of finance for SMEs is welcomed by Blackfriar.

Bond and note issues have been the preserve of bigger corporates up until now, with only companies such as Provident Financial, Fenner and Morrisons able to get them away.

Crucially, they require an impartial assessment of their credit-worthiness – ie. what’s the risk the company won’t pay back the IOU?

That is typically done by ratings agencies such as Fitch and Standard & Poors. Getting these and other agencies to provide ratings will be crucial if bond markets are to be opened up to mid-tier firms.

This type of finance tends to be longer term than bank debt. It may also offer a welcome alternative to equity finance, where companies give away shares in return for cash, but often have to hand over the family jewels to external investors.

If successful, opening up the bond markets to smaller firms could be a vital funding lifeline for businesses, and help them sidestep the risk-averse banking sector.