Peter Crook, chief executive of Provident Financial Group, has resigned after a restructure dismantled the sales and collections performance in the lender’s home credit business.
A comprehensive change to the operating model for the home credit division, which involved employing full-time customer experience managers instead of self-employed agents, reaped severe disruption through operations and business performance - and ultimately cost Crook his job.
The group, which owns non-standard credit brands such as Vanquis Bank and Satsuma, issued a trading update this morning (August 22) which revealed the full extent of damage to financial results left by the restructure. Provident said its pre-exceptional loss is now likely to be in a range of between £80m and £120m.
After admitting there had been “substantial deterioration” in trading performance of the home credit business, shares in the company fell 60 percent in the first few hours of trading. Investors have also been warned to expect a downturn of up to £180m in annual earnings.
The trading update also revealed that a product offered by Provident’s credit card business Vanquis Bank is under investigation by the Financial Conduct Authority (FCA). The regulator is probing the company’s repayment option plan, which enables customers to take payment holidays over a certain period, if they pay a fee. Customers’ credit files remain protected if they use this option.
"My immediate priority is to lead the turnaround of the home credit business"
In view of both the fall in business performance and uncertainty around the Vanquis investigation, Crook has decided to step down immediately as CEO and Manjit Wolstenholme will become executive chairman.
Wolstenholme said: “I am very disappointed to have to announce the rapid deterioration in the outlook for the home credit business. Protecting the group’s capital base through withdrawing the interim dividend and in all likelihood the full-year dividend is the appropriate response to maintain the highly valuable franchises of Vanquis Bank, Moneybarn and Satsuma. My immediate priority is to lead the turnaround of the home credit business.”
Provident’s move to a new operating model, of using full-time customer experience managers (CEMs), has been beset with issues since it was first announced on January 31 this year.
Between announcing the changes and deploying them on July 6, the home credit business suffered “higher operational disruption than planned”. Provident experienced higher than expected agent attrition and “reduced agent effectiveness on collections performance and sales”. This led to a warning in June that forecasted profits from its consumer credit division would drop £55m to around £60m.
Provident’s primary objectives for the third quarter of 2017 were to embed the new model and restore customer service and collections performance, before a seasonal lending peak during the fourth quarter.
The lender’s trading update reveals the rate of progress being made “is too weak” and the business is now “falling a long way short” of achieving these objectives. Collections performance is currently running at 57 percent versus 90 percent in 2016 and sales at some £9m per week lower than the comparative weeks in 2016.
The routing and scheduling software deployed to direct the daily activities of CEMs also presented early issues, primarily relating to the integrity of data. The prescriptive nature of the new operating model also prevented sufficient local autonomy to prioritise resource allocation during this period of recovery.
Provident said a thorough and rapid review of the home credit division’s performance is underway to secure the turnaround of the business.
Provident added that Vanquis Bank is co-operating with the FCA’s investigation into its repayment option plan, an ancillary product. This option contributes gross revenues, before impairment and costs, of around £70m a year.
The FCA indicated that it is investigating the period from 1 April 2014 to 19 April 2016. Vanquis Bank agreed with the FCA to enter into a voluntary requirement to suspend all new sales of the plan in April 2016 and to conduct a customer contact exercise, which has now been completed.
Vanquis Bank has also agreed with the Prudential Regulation Authority (PRA), pending the outcome of the FCA investigation, not to pay dividends to, or enter into certain transactions outside the normal course of business with, Provident Financial Group without the PRA’s consent.