Amigo: slap happy lender seeks its own guarantors

Sometimes a slap on the wrist is enough. Sometimes, it is the only punishment available. The UK’s Financial Conduct Authority has publicly censured Amigo Loans for failing to assess customer affordability properly. The alternative was a £73mn fine that the struggling guarantor lender currently has no more than a snowball’s chance in hell of paying.

Amigo’s bombed out shares are worth just £12mn, compared with £1.4bn when floated in 2018. Lofty claims about tech-empowered lending fell flat when it emerged some borrowers and guarantors were not assessed properly.

Redress claims flooded in, forcing a settlement and a halt to lending. An appropriate FCA fine would have finished Amigo off, reducing redress to borrowers who were mis-sold loans. The chances of Amigo returning to financial health remain remote.

Amigo now needs to raise £45mn in new equity to play out the best-case scenario for a scheme of arrangement. This aims to return to creditors, including claimants, about 40 pence for every pound owed. Of the new money, £15mn would go into an existing £97mn pot that is already ringfenced to pay claimants. 

The remaining £30mn would fund Amigo’s new lending business. The lender is piloting this under the brand Reward Rate. Lending volumes are currently about £1mn monthly. Annual interest rates of about 40 per cent compare with 50 per cent typically on offer before.

Shares are now a binary bet for penny stock specialists on whether Amigo and its bankers can pull in new funds. The FCA’s decision has marginally improved the chance of this.

Most institutional shareholders stampeded out long ago, leaving Amigo’s large retail investor base to cover the cash call. Management has until a hard stop at the end of May.

Failure would mean liquidation for the company, lower payouts for creditors and a wipeout for shareholders. UK regulators are regularly and rightly lambasted for being too soft on misconduct. In this case, the FCA was right to withhold financial penalties.