Vanquis shares slump as FCA motor finance probe ups costs

Vanquis banking group shares plunged on Monday after the company warned that profits would be “substantially lower” than market forecasts.

The Bradford-based firm expects an adjusted return on tangible equity (net profits divided by shareholders’ equity) in the low single digits for the current financial year.

It follows “significant levels” of third-party complaints relating to the Financial Conduct Authority’s review of the motor finance commission’s landmark settlements.

Although it was not the subject of the FCA investigation, the company said its administrative costs had increased significantly in dealing with the high volume of complaints, an overwhelming majority of which were upheld.

Vanquis said he was considering legal action “to address this situation.”

Meanwhile, for fiscal 2025, Vanquis anticipates its RoTE will remain at a single-digit level due to the “near-term adverse impact” of accounting requirements related to accounts receivable growth.

Vanquis’ share price fell 39.6 per cent to 75p at midday, making it by far the biggest faller on the FTSE All-Share index.

Launched in January, the FCA’s investigation into historic car finance loans will examine so-called “discretionary commission arrangements” (DCAs), which used to comprise around three-quarters of all car finance deals.

DCAs were controversial because they allowed car dealers and brokers to impose any interest rate they wanted on a loan, thus encouraging them to charge higher rates. They were finally banned in 2021.

However, over the past year, more customers told regulators that lenders unfairly rejected their compensation for DCAs.

The Financial Ombudsman Services recently ruled in favor of two clients whose cases were rejected, while others were upheld in court.

With lenders expected to receive a flood of complaints following these rulings, the FCA launched an investigation into the DCAs and told car finance lenders to pause their responses to complaints received since 17 November.

Many analysts believe the investigation could mirror the payment protection insurance scandal, which led to banks paying out around £40bn in compensation.

Vanquis said in January that its car finance arm Moneybarn was not affected by the FCA investigation as it never offered variable commissions.

Later this month, the company plans to launch a strategy to return RoTE levels to the mid-teens from 2026 through a return to “sustainable revenue growth.”

On Monday, it warned that moves to overhaul its products and pricing would result in annual revenues being “materially lower” than the £538.3m estimated by analysts.

Ian McLaughlin, chief executive of Vanquis, said: “We have short-term challenges to address, but we remain confident that the group’s new strategy will deliver good results for our clients and attractive, sustainable returns for our shareholders in the medium and long term.” .