NSF to close troubled guarantor loans unit

Non-Standard Finance revealed a £135m annual loss on Wednesday, weighed down by the pandemic and hefty exceptional costs, as it confirmed plans to close its troubled guarantor loans unit.

The subprime lender reported revenues of £162.7m in the year to 31 December, a 10% decline on 2019, while operating losses came in at £24.5m, compared to operating profits of £32.1m a year previously.

Once a series of exceptional items were included, however, the reported pre-tax loss widened to £135.7m, against 2019’s £76.0m loss. One-off items included a goodwill write-down of £74.8m and redress costs for the guarantor loans business of £15.4m.

NSF- which owns the George Banco, Everyday Loans and Loans at Home brands - has been hit hard by the pandemic, with its loan book down 28% on 2019.

But its guarantor loans division has also come under intense regulatory scrutiny. Complaints have surged in recent years about the type of loan, where a friend or family member guarantees a borrower’s debt.

The FCA - which first raised concerns with the firm last year - has not yet approved the methodology NSF has used to calculate redress costs.

As a result, the company conceded: "While the estimated cost of redress is based upon a detailed methodology and analyses developed in conjunction with the group’s advisers, as the FCA has not yet approved the methodology proposed, there is a risk of a less favourable outcome."

John van Kuffeler, chief executive, said: "Having completed a detailed review of the division and its prospects, the board has concluded that shareholder interests will be best served by placing the division into a managed run-off, and ultimately closely the business.

"While hugely disappointing, collecting out the loan book is the only rational conclusion."

Shares in NSF fell sharply, and by 1230 BST they were trading 14% lower at 4.32p, although that was an improvement on an 18% slide seen earlier in the session.

Van Kuffeler said: “The impact of the pandemic on our business was as significant as it was swift, and was a major factor behind the large reported loss in 2020.

“Despite best endeavours, we have also fallen short in a number of regulatory areas, which have led to increased complaint costs and a future redress programme, which of which have had a material financial impact.”

NSF announced earlier this month plans for a £80m equity capital raise, which it said it needed to avoid breaching covenants. The raising is dependent on NSF securing an agreement with the FCA, however.