Vanquis Banking shed 40% of its value as it warned of a significant uptick in no-win, no-fee complaints related to its credit card business.
As a result, underlying profits in 2024 will be materially below the £75 million previously expected due to the administration costs of processing these claims even though it says the vast majority are not being upheld.
Vanquis, which changed its name from Provident Financial last year, added it is not subject to the FCA’s current review of historical motor finance commissions.
A new repricing strategy for its credit cards and other products will also mean higher costs, with the strategy to be unveiled on 27 March alongside details on savings it expects from investment in technology.
These won't come through until 2026, said the statement.
Profits for 2023 will be in line with expectations while a dividend for 2024 of 1p should be paid, the statement added.
Ian McLaughlin, chief executive said: "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.”
Panmure Gordon said the repricing and repositioning were sensible moves from the new management team, but the attention of a Claims Management Company concerning credit cards means materially higher costs too.
It will be 2026 before there is any semblance of a return to “proper” profits and profitability, added the broker, noting that is an “awfully long time to wait”.
“With income lower and costs higher, we now estimate PBT in the region of £11m (consensus £75m).
“The cost issue of dealing with CMCs, when claims are largely fatuous, is something... the regulator needs to deal with, in our view, but while claims can be submitted without penalty, the financial services industry will struggle for investor attention we fear.”