Vanquis shares crater as bank issues profit warning amid surge in third-party claims

Shares in Vanquis Banking Group tumbled 50 per cent on Monday after the specialist lender said it expects profit to come in “substantially lower” than analysts’ estimates in 2024 from costs tied to restructuring and a surge in third-party claims.

In an unscheduled trading update ahead of its full-year results on 27 March, the Bradford-based bank said its expectations for last year’s earnings were still broadly in line with its estimates from the third quarter, with an expected adjusted profit before tax of £25m.

However, the firm said measures it was taking in the first quarter of 2024 to “redevelop its customer proposition and reset pricing” would return it to “modest lending growth” but drag down income and profits below expectations.

Current company-compiled analyst estimates predict a total income of £538.3m for the bank in 2024, with £181.1m in impairment charges and £282.1m in costs.

Vanquis said its adjusted profit before tax for 2024 would also be “substantially lower than market consensus”. Analysts currently forecast a figure of £75.1m.

Chief executive Ian McLaughlin, who joined a lossmaking Vanquis last July, laid out plans in October to save around £60m by 2024 via measures including cutting the bank’s workforce by nearly a fifth, some 350 jobs.

The bank said one area that would “materially impact” its profitability in 2024 was a “significant” rise in third-party complaints. City A.M. understands that most of the complaints have come from a single claims management company and are predominantly linked to credit cards.

Vanquis said: “Reviewing them is causing an increase in administration costs. While the vast majority of these complaints are not upheld, the associated costs are likely to materially impact the group’s profitability in 2024. The group is exploring proactive legal steps to address this situation.”

Analysts at Numis pointed out that any Financial Ombudsman complaint, “no matter how spurious”, would result in a £750 bill for Vanquis. The broker lowered its price target on the stock to 168p from 438p.

Vanquis, which provides motor finance through its Moneybarn business, said it was not a subject of the FCA’s review of historic motor finance commission arrangements, which analysts have warned could cost the auto lending industry up to £16bn in compensation fees.

The bank said it intended to propose a final dividend of 1p per share for 2023 and a dividend of up to 1p per share for 2024.

McLaughlin commented: “We have short term challenges to address but remain confident that the group’s new strategy will deliver good outcomes for our customers and attractive and sustainable returns for our shareholders over the medium and longer term.”

Updated with shares