Wonga Profit Slumps After Disastrous Year

Wonga saw its profits slump last year amid trading difficulties in its overseas and small business operations, underlining the task facing its new boss to improve the payday lender's performance.

Sky News has learnt that Wonga is expected to publish annual results for 2013 showing a slump in pre-tax profits from £84.5m last year to roughly £50m in 2013, a source close to the company said.

The period covered by Wonga's results is understood to pre-date the scandal triggered earlier this summer when it emerged that the company had invented a number of law firms in order to pursue customers for unpaid debts.

The episode prompted Wonga to agree with financial regulators to pay at least £2.6m to compensate 45,000 customers for sending them letters from non-existent firms such as Barker and Lowe and Chainey, D’Amato and Shannon.

Wonga's disclosures next week are expected to include a big one-off exceptional charge - possibly running to tens of millions of pounds - to cover legal and regulatory costs related to the fake legal letters scandal, although it is unclear which year the charge will be applied to its accounts.

The controversy marked a nadir for Wonga's reputation, and prompted the company to recruit Andy Haste , a respected City figure, as its executive chairman with a brief to clean up the company's affairs.

Mr Haste will be paid £500,000 a year during an initial period while Wonga seeks a permanent chief executive, after which his annual salary will be reduced to £300,000.

A new chief financial officer is expected to be appointed in the coming days, while Mr Haste has also hired a former RSA colleague, Tara Kneafsey, to run its UK business.

Wonga's small and medium-sized business-lending arm, Everline, is thought to be losing money, as are some of the company's international operations.

Its accounts are also expected to show that Wonga bought back around 2.5m shares from Errol Damelin, the founder who stepped down as chairman earlier this year.

"I want to ensure that the business operates responsibly while providing an effective and reliable service for our customers. I have a clear mandate from the shareholders in Wonga to lead that process, both in the UK and across our international operations," Mr Haste told Sky News in July.

"I have asked all the questions I can think of asking, and I believe I’ve been made aware of everything," he said.

"Time (NYSE: TIME - news) will tell whether that’s the case."

The fall in profits in 2013 may be repeated this year, according to company insiders, because of continued underperformance in parts of Wonga's business.

The City regulator is also bearing down on providers of short-term credit, proposing in July a cap on payday lending meaning that from next January, interest and fees must not exceed 0.8% per day of the amount borrowed.

The Financial Conduct Authority is also imposing a cap on the overall cost of a payday loan so that it cannot exceed 100% of the original sum borrowed.

Asked about Wonga's 2013 results, Damian Peachey, a Wonga spokesman, said the company did not comment on "rumour and speculation" and would not confirm that next week's announcement would cover 2013's audited numbers alone.

He added that Wonga wanted to release its results "in a democratic way".

Last year, the company launched an initiative called OpenWonga, aimed at increasing transparency with stakeholders.