Costs jumped as revenue fell over the last few months at embattled subprime lender Amigo Loans (AMGO.L).
Guarantor lender Amigo Loans said in a first quarter update on Friday that revenue fell 31.7% to £48.8m in the three months to the end of June.
Customer numbers fell by 5.2% and the net loan book shrank by 24%. The company stopped most new lending in March in response to the COVID-19 crisis.
Amigo granted 47,000 payment holidays in the period due to COVID-19, which cost it £16m.
The cost of complaints rose 240% to £6.8m, while provisions for future complaint costs soared from £1.8m last year to £116.4m.
The rising costs and falling revenues led to an 83.4% collapse in quarterly profits, which dropped to just £3m.
The performance reflects the challenges posed by COVID-19 as well as increased scrutiny of Amigo by regulators. Last October Amigo struck a deal with the Financial Conduct Authority (FCA) to address a backlog of complaints. The FCA has also launched an investigation into Amigo’s creditworthiness assessment practices. Amigo said this probe was in the early stages but it was cooperating fully.
“The whole team at Amigo is focused on addressing our legacy issues and building a sustainable business for the long term,” chief finance officer Nayan V. Kisnadwala said in a statement.
“Operationally we have turned a corner in our handling of complaints. We are on track to meet the agreement reached with the FCA to resolve our complaints backlog and continue to work with the FCA on its ongoing investigation. We have adequate liquidity and funding to support our ongoing business activity.”
Amigo said it had £145m of cash on its balance sheet at the end of July.
The company said it plans to start lending again by the end of 2020 but said it was too early to offer any financial guidance.
As well as mounting regulatory issues, Amigo has faced an activist campaign from its founder. James Benamor, who stepped down as chief executive in 2016, first publicly raised concerns about how the company was being run in a blogpost in March. He claimed the company was “committing slow-motion suicide” by failing to get to grips with recent changes made by UK regulators.
Benamor failed at an attempt to oust Amigo’s entire board in June and vowed to sell his entire stake holding. Amigo’s chairman and chief executive both left shortly after the vote, having previously committed to leaving.
On Thursday Benamor said in a blog post he has called for another shareholder vote to oust V. Kisnadwala and his re-appointment as chief executive. As a show of faith in the business, Benamor vowed to buy “29% of Amigo, to be purchased at any price up to 20p per share” in the days following his appointment at chief executive. Amigo shares were trading around 14.5p on Friday.
“I’m making the choice easy for investors: Like what I’m fighting for? Vote for me,” Benamor wrote. “Don’t like what I’m offering? Vote for me and sell the shares you bought from me, back to me (at a good profit).”
Shares in the company jumped as much as 25% in London on Friday. However, the stock remains down almost 80% from its January 2020 levels.
Amigo’s former chief executive Glen Crawford is lined up to rejoin the business but is awaiting full regulatory approval. Earlier this week Amigo said Crawford’s appointment was predicated on Benamor not being involved in the business.
“In the event that Mr Benamor elects to requisition a general meeting for shareholders to vote on his proposals, and should he be successful in gaining shareholder approval for his proposals, the Board has agreed with Mr Crawford that he may terminate his employment contract immediately,” Amigo said.
Benamor, who has worked with Crawford in the past, said his comments were “hurtful” but wrote in his blogpost: “I feel no bitterness towards Glen for his words and will be very happy to work with him in the future.”