Vanquis Banking Group has said it expects profit to come in “substantially lower” than analysts’ estimates in 2024 as the specialist lender faces rising costs tied to restructuring and a surge in claims over motor finance deals.
In an unscheduled trading update ahead of its full-year results on 27 March, the Bradford-based bank said its expectations for last year’s earnings were still broadly in line with its estimates from the third quarter, with an expected adjusted profit before tax of £25m.
However, the firm said measures it was taking in the first quarter of 2024 to “redevelop its customer proposition and reset pricing” would return it to “modest lending growth” but drag down income and profits below expectations.
Current company-compiled analyst estimates predict a total income of £538.3m for the bank in 2024, with £181.1m in impairment charges and £282.1m in costs.
Vanquis said its adjusted profit before tax for 2024 would also be “substantially lower than market consensus”. Analysts currently forecast a figure of £75.1m.
Chief executive Ian McLaughlin, who joined a lossmaking Vanquis last July, laid out plans in October to save around £60m by 2024 via measures including cutting the bank’s workforce by nearly a fifth, some 350 jobs.
The bank said one area that would “materially impact” its profitability in 2024 was complaints tied to the Financial Conduct Authority’s (FCA) review of historic motor finance commission arrangements, which analysts have warned could cost the auto lending industry up to £16bn in compensation fees.
While Vanquis, which provides motor finance through its Moneybarn business, said it was not a subject of the FCA’s review, it noted “significant levels of third party complaint submissions”.
It added: “Reviewing them is causing an increase in administration costs. While the vast majority of these complaints are not upheld, the associated costs are likely to materially impact the group’s profitability in 2024. The group is exploring proactive legal steps to address this situation.”
Analysts at Numis said in a note: “We believe Vanquis isn’t exposed to motor finance because it has never offered variable commission rates, and it has never offered insurance premium finance.
“Nevertheless, the group has been exposed to a number of third party claims against it and despite the vast majority having no merit, we note that any FOS complaint, no matter how spurious results in a FOS bill for Vanquis of £750. Consequently, 2024 costs are expected to be negatively impacted.”
Vanquis said it intended to propose a final dividend of 1p per share for 2023 and a dividend of up to 1p per share for 2024.
McLaughlin 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.”