Shares fell 7% to 151.4p after management confirmed 2016’s pre-tax profits will be hit by the charge.
What are described as ‘irregularities’ in the asset finance division are at the heart of the problem.
Almost £15 million of loans were approved that do not meet the banks’ strict lending criteria. Chief financial officer Tom Wood has resigned.
The timing of the announcement could not have been worse for the FTSE 250 member. Banks have been hit particularly hard by the UK’s decision leave the European Union (EU).
Fears of lower economic growth and falling property prices have driven the sell-off, which has seen Shawbrook lose 43% of its value since the markets closed between referendum day (23 June) and 27 June.
The issue was spotted by an upgraded risk management system. Management believe that this system will prevent a similar problem from occurring but conceded that it was too late to stop profits from taking a hit.
Consensus puts pre-tax profit at £100 million for 2016 before the announcement, up from £70.1 million in 2015.
These problems aside, the core business is trading in line with guidance. Loan growth in the second quarter is flat compared to the opening three months of the year, but is a 35% improvement on 2015’s second quarter.
Interims are scheduled for 27 July.