NSF Closes Guarantor Unit Due to UK Subprime Issues

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NSF plans to close the guarantors division

Shares fell 12% in morning trading

Co falls to annual loss compared to profit a year earlier

Adds details, background to the industry

June 30 (Reuters)Non-standard finance NSF.L said it plans to close its guarantee unit, the last UK subprime lender forced to scale back due to a surge in complaints and close regulatory scrutiny.

NSF, whose shares fell 12% after the results showed an annual loss and high costs, said it would move its guarantor unit into a manageable outflow and eventually shut it down.

Business accounted for about a quarter of NSF’s total loan portfolio, which stood at £ 258.2 million ($ 357.19 million) by the end of 2020, well below the £ 361.6 million pre-COVID level.

“After completing a detailed review of the guarantee business and its prospects, the Board has concluded that shareholder interests will be best served by incorporating the business into a manageable outflow and ultimately closing the business,” said NSF Chief Executive John van Kuffler. …

NSF plans come after larger competitor Provident Financial PFG.L go outd the home loan market as a whole, while the other guarantor lender Amigo AMGO.L faced potential insolvency after a sharp increase in the number of complaints against him.

NSF said it has raised concerns with regulators about some claims management companies (CMCs) that appear to be filing a large number of claims without proper customer approval or using customer data obtained without permission.

MUNCERTAINTY AHEAD

As the number of lenders dwindles and the health crisis leads to an increase in the number of people with poor credit ratings, experts expect market shortages to allow illegal lending to flourish.

Subprime lenders have been targeted by regulators for over a decade due to sky-high interest rates charged to people trying to survive.

NSF has confirmed it plans to raise £ 80m following regulatory issues. Its pre-tax loss in 2020 was £ 35.2 million, compared with a profit of £ 14.7 million a year earlier.

Its exceptional expenses increased to £ 97.8 million from £ 80.6 million, including a fee of £ 15.4 million to account for the estimated costs of the indemnity program.

Goodbody analyst John Cronin said there is “a lot of uncertainty” ahead about whether and under what conditions the capital can be raised, and about the prospects for a return to profitability over the medium term.

(1 dollar = 0.7231 pounds)

(1 dollar = 0.7229 pounds)

(Reporting by Muvia M. in Bangalore; editing by Caroline Cohn)

((muvija.m@tr.com; in the UK: +44 20 7542 1810, outside the UK: +91 80 61822698; Twitter: https://twitter.com/muvija_m;))

The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Nasdaq, Inc.



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