Shares in Amigo (AMGO) rallied 61% to 13.7p on Friday after the embattled lender extended a deadline with the Financial Conduct Authority (FCA) to deal with a customer complaints backlog and insisted it has enough liquidity to see it through testing times.
BUYING SOME TIME
Providing loans to borrowers who struggle to obtain credit from mainstream lenders if a friend or family member can act as a guarantor, Amigo has seen 95% of its market value eroded over the past year amid rising complaints, a boardroom coup attempt and investigations from the FCA over its creditworthiness assessment process and oversight.
Yet buyers resurfaced today on news Amigo has entered into an amended Voluntary Requirement (VReq) with the regulator where it has agreed to ensure all complaints are dealt with by 20 Oct, a date pushed back from the previous deadline of 26 June.
In a concise update, Amigo warned the VReq extension implies that ‘the number of complaints covered by the VReq will be substantially increased’ and it will have to set aside more money to settle them than the market previously expected.
‘Whilst there is significant uncertainty about the eventual outcome, the cost of the amended VReq is expected to be substantially higher than the estimate of at least £35 million, as it will cover a longer period and will be dependent on the total number of complaints received,’ conceded Amigo.
When Amigo puts up results for the year to 31 March 2020 on or before 23 July, investors should brace themselves for a ‘material increase’ in the year end provision it needs to set aside due to the spiralling number of complaints the company is receiving.
STRONG LIQUIDITY REASSURES
The positive news is that Amigo’s liquidity remains strong, the coffers replete with a cash balance north of £136 million as at 30 June 2020.
Management assured that the company has ‘sufficient financial headroom and cash on its balance sheet to continue to fund operations and support its customers during this challenging time’.