Amigo shares fell more than 34% in one day, amid fears the subprime lender could collapse if a controversial proposal to cap customer compensation claims is rejected by a UK court.
The lender temporarily suspended stock trading on Wednesday, ahead of a final hearing on the bailout, which has been criticized by MPs, debt activists and the UK regulator for being unfair to some of the poorest borrowers in the country. UK. The drop in the share price came after trading resumed on Friday morning, pending a final decision.
Amigo has come under criticism for fear that many of its 1 million former and current customers who have been mis-sold will only receive 5% to 10% of any successful claims, as part of plans to cap the pool of clients. maximum compensation. Â£ 35million and 15% profit over the next four years.
Campaigners also opposed proposals that would give directors the opportunity to earn Â£ 7million in long-term bonuses under the deal.
Amigo, which charges 49.9% interest and requires borrowers to provide a friend or family member to act as guarantor, says it is unable to meet the rising costs of processing customer claims through the UK Financial Ombudsman. Executives said the company could collapse into administration if the program is rejected, resulting in minimal payments for borrowers.
Amigo was founded in 2005 and rose to prominence following the demise of subprime rival Wonga in 2018. Last year it was inundated with requests for abuse after clients accused the company of failing to have performed basic financial controls.
While 74,877 of its creditors voted in favor of the program last week, down from just 3,863 against, the proposal has been called into question after the Financial Conduct Authority took the surprise decision to oppose the program in court. . The move frightened investors into hopes the program would do away with allegations of costly sell-outs.
It marked a turnaround for the regulator, which said in March it would not oppose the plan despite concerns about how abuse complaints would be assessed by the company and a cap on payments. However, the FCA presented these concerns during the final court hearing on Wednesday.
“We are now awaiting a court ruling,” FCA said.
Nervousness over the final decision sent stocks tumbling to 12.8 pence on Friday, before recovering slightly to 15.87 pence. Amigo’s share has almost halved in value over the past two weeks.
John Cronin, financial analyst at stock brokerage Goodbody, said the price change was “not a surprise,” given the judge did not make an immediate ruling as hoped and instead left the company in limbo.
“Investors are presumably scared that Amigo could go into liquidation – and the judge’s ruling was not the ‘slam dunk’ investors thought it could be following a strong rally of support on the part of the creditors. “