Amigo Holdings PLC (lon:amgo)
Amigo – Odd Price Rise.

Amigo have just created a new company, ALL Scheme Ltd which is intended to be the vehicle for paying compensation claims using the Scheme Of Arrangement as discussed previously.

My initial thoughts were that the SoA had been discussed with and given the nod by the FCA yet the court date has been set for 30th March but the FCA are yet to support it.

Amigo have said that if the SoA is not approved then the company will be insolvent and based on its calculations no compensation would be paid to customers.

The SoA is a bit “clever” a new company has been created and will take on the compensation liability, it has no shareholders other than Amigo so no vote on the SoA by the shareholders is needed. If you trust the new management and believe that they have been given a difficult job then this is fine, if you wanted a say as the SoA could have had an impact on your holdings that you may be a bit annoyed.

For me the reality is that for any long term holders the situation is so bad that what happens, even closing the company down is pretty much no different from now, at around 6p per share. If you are a new share holder then you knew what you were getting into.

This still leaves the problem of the business going forward "Our new customer proposition, Amigo 2.0,.. you can’t get away from the fact that 50% for a guaranteed loan is a bad deal for the borrower, so can they come up with a better deal say 20%-25% and still make a profit?

Today’s announcement of a plan to go court to get a Scheme Of Arrangement to cap the liability on the unaffordable claims compensation seems like a positive step.

However it does continue to justify the questioning of the announcements made by previous directors on the position of the company and is an important reminder when considering investments.

As I read it the plan is to stop paying any unaffordable loans compensation immediately.

Then customers with outstanding loans will have their loan balance reduced by the compensation due.

For where there isn’t an outstanding balance, or the balance is less than the compensation due a pot of between £15m and £35m plus 5% of the profits over the next 4 years will be created. This pot will be used to pay these claims possibly on a partial pro-rated basis.

This arrangement would require approval from the FSA, 75% of creditors which in this case would be the people due compensation and a Judge. It does seem likely that the judge would grant approval if the other two parties agreed.

The FSA approval seems possible as the current board is in tune with the FSA and it would seem likely that this idea would have been raised in private.

I would expect that the FSA would be considering the validity of future claims, how many would be genuine and how many would be claims management companies trying it on.

If closing the business is a genuine possibility and to me it seems that it is, then that is a pretty big threat to hold over the customers due compensation and with significant loan balances.

The debt would be sold and it is not at all clear what liabilities that new party would have, so the borrower may end up with a more aggressive debt holder with no liability for the miss-selling.

My problem is that I can’t really understand the validity of many of the complaints, the borrower and guarantor asked for and accepted the loan. That is at least two adults who agreed to take out the loan.

I do understand that the company may have been too willing to make the loans as they regarded the guarantor as someone who would step in immediately effectively adding their income to the borrower’s income.

The 6 month trading update is pretty much a no news report for those who have been following the company.

We know that not much new lending has been taking place so revenue would be down as loans get paid off and we know that complaints have been rising.

The complaint provision at £159m is an almost exact match for the £160m cash pile as of 25 Nov, so you could still argue that company has value from it £485m loan book.

I am of the view that there can’t be that many genuine complaints that have not yet been made, it is encouraging to see Where we've seen evidence of very poor behaviour by some CMCs, we have reported them to their regulator.

As well as getting rid of spurious complaints, it may help the company going forward as it can point to an increasing number of rejected complaints.

Amigo is working with advisers to review options, that are acceptable to all stakeholders, to address the current level of complaints. While at an early stage, this includes assessing the use of a scheme of arrangement as a potential vehicle for customer redress.

If almost all legitimate complaints are in them the company has the money to cover them, and yes new lending volumes might be lower as the guarantor role has changed slightly but surely we are only seeing a step back of a couple of years.

This does bring up the old JB complaint of lots of consultants being paid to do what the management should be doing and leaves everybody wondering what the future is, everybody but the share holders doing fine thank-you?

It seems that the James Benamor “I can save the company if you sack the board” situation is now completely over. I was considering that JB may discretely buy back shares on the open market to have one last go at regaining control but there are no obvious signs of this.

Looking back, I was initially supportive of his “blame it on everyone else” approach, but as time progressed and we saw his big sell off it all now seems very “Trump, we won the election”.

Add to this in the recent past the board has been changing to what I would describe as people whom the regulators would consider the “right sort of people”. Today’s announcement of Shaminder Rai, Paul Dyer and Mike Corcoran means that the board is close to all new.

Richard Price a non exec since 2016, Nayan Kisnadwala is about to step down and the company secretary Roger Bennett has been in that role since 2019.

The Asset VReq is to me a formality as the company doesn’t have any real money to pay out and almost seems to be a protection against the now redundant threats from JB to take funds and redeploy them in unregulated lending.

Unfortunately the Claims Companies are gunning for Amigo, they are openly using Amigo’s name along with guarantor loans and one site has “Average compensation is £4,600”.

We saw how long PPI claims dragged on for, but in this case there may be a lot more work for the claims companies as the PPI claim basis was simple, I didn’t ask for it or couldn’t claim on it.

With Amigo the main basis for claiming is that you couldn’t afford the loan and shouldn’t have been offered it. Amigo have records on who has had repayment difficulties and when the guarantor made payments so they should have a good approximation on the number of legit claims.

If you need to use a claims company to prove that a loan you asked for you couldn’t afford then is this going to be profitable for the claims companies? Or are they going to run a mile once they get experience with processing such claims?

The core demand for Amigo type loans is still there, so it a question of is there still money to lend after repayments to customers have been made?

If not it seems odd to me that the new directors would have come on board a company that could be about to violate its “securitisation facility performance trigger” which was waived until 18 December 2020.

Interesting comment from the new CEO, There are undoubtably cases where we have done the wrong thing, but a significant number of the claims that we are getting are not genuine claims.

This is the first time that I have seen public comments that suggest that the board is starting to push back against the claims made against the company.

I get the idea that the regulators FOS/FCA are government employees in pretty secure jobs who live in their own bubble, but it won’t help your case if you rant and rave against them and say that you want to take you capital and lend it out in an unregulated market as JB has been doing.

I have had a good relationship with the Financial Conduct Authority and the Prudential Regulatory Authority in my previous roles. I am going to spend my time building relationships with the key people in the regulator; to discuss …

So GJ may be able to say substantially the same things as JB, but where JB might be ignored because he seems to have decided the best approach was to dispute the regulators authority GJ may be more one of the club. So he will be both better understood because he presents the arguments in the "right" way and trusted more because he accepts that the market is regulated.

The one area that I do expect there to be an issue with, if there is a future, is the role of the guarantor.

The original Amigo model seems to be that the guarantor is a provider of payments as a second resort, if the borrower misses one payment then the guarantor must step in and make the payment.

Traditionally the guarantor was the last resort, only expected to step in when many payments have been missed and court action taken and ignored.

I see nothing wrong with the original model and it is easy to believe that many guarantors thought that they had signed up to the last resort model and that thought was not totally unreasonable.

Again there are two ways of presenting this to the regulators for both new and existing customers and GJ may be successful in this. So with better documentation the original model may still be available.

Amigo have a very strong case and it may be that letting that case speak for itself is the way forward, regulators know that they can’t just decide to declare agreements invalid and expect any industry to survive.
Although I don’t know where it is, there is definitely a point where it becomes clear to everyone that the complaints are not genuine.

Unlike PPI there it is not the case that Amigo are almost automatically in the wrong, the complaints are based on “I asked for and was given a loan and Amigo shouldn’t have given it to me”, which should be a pretty tough sell.

When the JB v The Board public spat started I tended to side with JB, someone being picked on by the establishment, but the more tweets that he made and his actions in dumping his shares and the presentation of those actions and then the buy back offer have made suspect that I was wrong.

It seems that whilst many did support JB the results were roughly 58%/42% in the board’s favour despite the easy money potentially on offer to those who bought the Richmond Group shares with the promise of a buy back if JB became CEO.

It also seems that only around 30% of shares were voted which is odd, so what does this all mean for the future?

Does the Richmond Group start buying shares on the open market whilst at the same time apply for the necessary approval to acquire a controlling interest and have yet another vote in a few months’ time?

Even if they do the core issue of did the company make bad loans which seems to be a concept that JB struggles with or has the current board been overly compliant in accepting the blame remains.

JB has been posting a lot recently about how the FOS/FCA have been too much on the side of the borrower and guarantor, a position that I have fair degree of sympathy with, but that doesn’t make the problem go away.

However JB did the company no favours in a recent online rant when he seemed to say that guarantors stepping in make the occasional monthly payments is fine and to be expected.

This does suggest that some loans were made under the principle that the company didn’t mind if the loan would occasionally be a problem for the borrower as the guarantor will step in.

There are a number of web sites encouraging “it’s the lenders fault for lending, not mine for asking” attitude but there has to be a limit to this argument especially if the borrower admits to overstating income or understating expenses and blames Amigo for not detecting this.

With Richmond Group's large share holding gone, the company is surely ripe for a takeover offer, the current market cap is less than £50m, a tenth of a languishing Provident.

How many would now take the much derided 20p and remember that most of the complaints don’t dispute the obligation to repay the amount borrowed?

I am not a fan of either side in the Amigo control war, James Benamor or the current board but I was surprised by the recent announcement that Glen Crawford wasn’t going to take up the CEO role and that Gary Jennison would take it on instead.

Only a few weeks ago the board was very clear that Glen was the man for the company and that Glen had already effectively resigned if JB were to be re-elected as a director. Making a JB/GC management team out of the question.

Now Glen has a divergence of views with a majority of the Board. and a new CEO has been found, but there are no indications on how the company’s board sees a real future for the business.

JB’s rants about Suits looking after themselves and their salaries doesn’t feel so far off.

However JB posted this article on 22nd Sept https://medium.com/@james.benamor/gather-round-kids-im-going-to-tell-you-the-story-of-how-glen-became-ceo-of-amigo-the-first-time-b1a574ccca7b and it does contain a theme that has been repeated a lot recently.

It’s all someone else’s fault

, but in this article it gets worse

Sometimes I’m wrong, but unfortunately this wasn’t one of those times. Chris was a typical corporate type………..I put up with it because we were pursuing a deal to sell the company,

The best that could be said of these new board members was that they had relevant CVs, and knew how to nod.

I am sure that all of this is comforting news for those who thought they were buying into a business with a future when it was floated just a couple of years ago.

The next two years were great. Glen and I made a perfect team.

Which makes me wonder if the GC wouldn’t work with JB remarks no longer represent the current situation and post 29 Sept they will be in charge.

However I am still left with this noticeable lack of regret for selling a business that tanked, in much the same way as he makes a positive out of

We had spent 10 years telephone screening every guarantor and lending only to those who were aware and happy to pay as soon as a borrower missed a payment, for any reason.

Guarantors who had been used to making an occasional payment for their sister or son, on the 1st of the month, were now being told on the 20th that a payment that had been missed 3 weeks ago was their responsibility, and another was due in a week.

This are a very interesting couple of paragraphs.

JB is saying that we got our repayment from the guarantor immediately so no repayment backlog was allowed to build up, and all three parties knew what they were signing up to.

I am a supporter of this type of loan being available, it stops debt building up to an unmanageable level for the borrower or the guarantor, but do remember that is attached to a 49% p.a. interest rate.

It is an unusual way to use a guarantor though so it is easy to see how Amigo are happy with it but the FCA seemed to be suggesting that actually this is a problem because it is indicative of the borrower being unable to afford the loan.

I suspect which side you fall on in the above will be a personal view, should a company be allowed to lend to someone who can’t afford the loan if that borrower can get a non-beneficiary of that loan to accept liability for it?

The FCA does exist and does have authority and needs to be dealt with, yet we don’t have an understanding of how a JB led company would do that. A statement such as “The customers understood the contracts the FCA is trying to rewrite them and we are going to court to stop that” would be clear.

Despite all the rants against Suits and Corporate types Amigo was based on lending money that they had been lent by Suits and Corporate types.

So JB is still preaching to the same audience and the board by appointing Gary Jennison (look him up on Linked In) are too preaching to their audience.

The latest RNS from the Amigo board is sad, on one hand they clearly have a duty to point out facts, they are correct that Richmond can only buy 20% (as Amigo are a “Non Directive Firm”) without FCA approval and further regulatory approval will be needed for Gary Jennison and Jonathan Roe

But they have a problem in that Glen Crawford also requires regulatory approval and we are told that he is critical to the company.

Looking at the CVs of GJ and JR it seems that their approval or not is just as likely as GC’s but the language of the RNS seems to try and suggest otherwise.

The RNS also goes on to say that if JB is appointed as a director, the board may not appoint him CEO, again this is a fact, but what does it say about the board?

That they are not going to follow the shareholders’ clearly expressed wishes for the direction of the company? Of course the shareholders may not vote for JB as a director and wish to continue on the current path.

On the other hand JB is on twitter telling everyone how he can solve the problems and how he cares for the small shareholders, despite trashing the share price by selling his stake on a fixed schedule and how he is the good guy.

Apologies for the price drop at the end there. That was our broker shaking the last of the crumbs out of the bottom of our box of Amigo shares.

Who is he apologising to, the people who bought in a 275p at the float in Jun 2018, 164p when the company’s problems started to become apparent in Aug 2019 and 80p by the end of Aug 2019 when the implications of these problems became clear.

No, it seems that he is apologising to those who bought in at 6p-12p hoping to make a quick profit.

It is interesting that the JB didn’t address the 20% controlling interest threshold in his tweets about buying 29%, is he assuming that approval will happen quickly and almost automatically?

I don’t see this, approving a group of individuals as directors doesn’t necessarily mean that that a related but separate legal entity, RGL, would be waved through as an owner with a controlling interest.

Especially when that entity recently appears to have dumped its 60% shareholding to get out of a Relationship Agreement and then wants to buy the many of those shares back at a massively deflated market price.

This omission could simply have been because it is too complex a subject for a tweet or it could be that it is not seen as a real issue. As there has been time to address this outside of twitter it seems more likely that it is not being explained as it is not regarded as an issue.

Even a 19.9% holding is close to a an effective controlling interest especially if most of the remaining shares are in the hands of retail investors.

Given that Amigo are going to be in a quite “complicated” discussions with the regulators this is worrying especially as JB has made comments stating that he wants to move Amigo funds outside of the regulated credit market.

JB is still trying to sell himself as the good guy despite all the recent shenanigans but don’t forget that Amigo offer loans at 49%APR to people with a guarantor for that loan.

My worry is that all of this indicates someone who doesn’t like to have his actions scrutinised and deemed unfair, which is going to be a problem in financial services, don’t forget Amigo brought in Hamish Paton from Brighthouse.

I have been really struggling to understand the RG position but JB’s recent tweet makes sense of it.

I will soon pass another irrevocable order to our brokers. This time, a buy order, for 29% of Amigo, to be purchased at any price up to 20p per share, in the days immediately following my appointment

So the sell off frees him from the Share Holder agreement that prevented him from exerting control.

For convenience let’s say he sold his shares at 8p per share on average, he buys almost half of them back (29% of Amigo) at 20p giving him almost effective control of the company.

If you believe that the company has any value then 20/8= 2.5, times 20p = 50p share would see RG even financially on the recent transactions but with a share holding half of what it was, if the share price were to rise to 70p then RG would be almost financially even at a 60p per share valuation.

As an example Imagine that you had 100 shares at 50p each or £50 worth, which was the share price pre the covid dip that affected many companies. A genuine free market value of the shares is hard to determine, not least because of the RH sell off.

             Num        Bank
Position     Shares     Balance
Starting        100       £0.00
Sell at 8p        0       £8.00
Buy Back 20p    100     -£12.00
Sell at 50p       0      £38.00
Or
Sell at 70p       0      £58.00
Or
Sell at 100p      0      £88.00
Or
Sell at 120p      0     £108.00

So yes there is a definite loss in this approach in comparison with doing nothing, but it is not a ridiculous loss if the prize is regaining control of your company.

It seems reasonable to assume that the 29% purchase limit is there to avoid hitting the point where he would have to offer to purchase the whole company.

So this does beg the question were any of the shares sold, sold with any form of gentlemen’s agreement that they can be bought back at the price they were sold at plus a reasonable profit?

Don’t like what I’m offering? Vote for me and sell the shares you bought from me, back to me (at a good profit).

Which is probably an attractive offer to people buying the big sell off speculatively although long term holders would want to stay invested as it is a terrible price for them.

If this was the plan since being rejected for a board position a few months back then it does seem to be one that has a good chance of success, the plan gets carried not because the share holders believe in it, but because it is a good deal for the new share holders.

Clearly only half of the new shareholders will be able to sell directly, but the open market price would probably exceed 20p at least during the time it takes to work out if JB can lead a recovery.

So this just leaves the language of the recent tweets, does it actually mean anything or was it just part of the plan, as one of the risks of the sell off is that the shares would be bought by the Amigo Board or Board friendly people.

Is there any chance of the company recovering? Closing Amigo as it currently stands as it has been regulated out of business is a sort of admission that they were doing something wrong but maybe that doesn’t matter, taking the funds and using them to lend on the purchase of products directly seems to be the preferred future.

I was looking at Studio recently, they seem to be using the mail order catalogue model of selling product at close to full price along with almost guaranteed credit, eBay have a credit facility so there would be a market for such a service.

It will be interesting to see if the Amigo board makes a complaint about market manipulation, because if the above is correct then RG sold its shares with the intention of buying them back and the main reason for doing so was to alter the way that the company is governed. That RG lost money in the short term may just be a cost especially as in the long term that is loss could easily be recovered.

The Q1 2020 results don’t contain anything of real significance to anyone who has been following the company, and so far the response to the GM request is The Company is consulting with its regulators and its advisors so I expect the maximum allowed delays before the meeting occurs rather than let's get it done.

Over the weekend James Benamor has published another blog article calling for him to be CEO and how he can save the company and some Trump type language aimed at the FOS, FCA, various directors/ex directors and even some of the customers.

What confuses me is why, from JB’s Twitter

About Glen saying that he would leave It’s unfortunate that, when forced to choose a position he publicly chose ‘against’. But in my opinion, the chances that Glen would actually resign if this proposal was voted in are roughly 0%

Shareholders have given a strong message that they want me to return to the company. Last week the market showed that it valued Amigo with me much higher than Amigo without me.

Didn’t shareholders just speak forcing Richmond’s share sale, if you vote against me I will sell my shares and given the volume of shares recently sold who knows what is going to affect the price.

By the 21 Aug 2020 Richmond Group were down to a 14.66% holding, does he believe that those shares are now in the hands of people who will vote him in or is this just vanity posting and posturing?

Whilst I am sympathetic to the view that the regulators may be ignoring the fact that the borrower and guarantor did ask for the loan and passing the blame onto Amigo does seem unreasonable, the language of the blog is odd.

Amigo is a brand that stands for a mission: to fight the unfairness of exclusion that comes from an industry that judges customers on their credit history alone

The U.K. regulator’s actions have supported fraud by consumers against lenders,

Which does seem at odds with a 49% interest rate for a guaranteed loan, the rate was clear when the loans were issued so there is no issue there.

Private investors, some with a few hundred shares, others who have most of their life savings in Amigo, have been left in the dark by the previous board.

Of course declaring that Richmond Group would be dumping 60% of the company’s shares onto the market at 1% per day was in the best interests of who? I can’t even see it as being in Richmond’s interest, surely some private deals could have been reached.

There is a trading update due this Friday but I am not sure if there is anything new to disclose other than an update on the FOS/FCA discussions.

Richmond Group are now down to 16% so in another 3 weeks they will have sold all of their holdings.

Another extension of the securitisation facility performance trigger waiver had been granted until 18th December

The groups funding comes from two sources, a third source an RCF has been cancelled as it is no longer needed as no new loans are being made.
Senior secured notes due 2024 – £234m
Securitisation due 2022-2026- £300m (reduced to £250m)

The Securitisation funding is primarily a legal manoeuvre, AMGO Funding (No. 1) Ltd, is a special purpose entity created for the purpose of funding the lending but its liabilities and assets are ultimately owned by Amigo.

New drawings were to stop in 2022 and it was to be repaid by 2026. A waiver on the terms of this funding has been agreed until December 2020, this means that no new funds can be drawn but also that the performance clause which COVID could well trigger will not be applied.
However this waiver also requires that this facility must be restructured.

Early Amortisation is the penalty for not being able to restructure the facility this mean no new funds from the facility and the balance to be repaid starting then not 2022.

The terms of this performance trigger isn’t easy to find nor exactly what the terms of Early Amortisation are.

Amigo have used £199m of the £250m facility and it appears that all repayments from loans made using this loan facility are being used to reduce this balance.

The company is still not lending but the last report said 220,000 borrowers and < 10% of repayments made by guarantors. So we can’t forget those who are repaying their loans, a loan book of £643m and almost £300m of repayments.

Surely we must be close to the point where COVID can no longer be the reason for not lending, is everybody just killing time until some better understanding of the FCA view on the sufficiency of Amigo’s credit check is known.

Q1 results are due soon and they will clearly show no new lending and some reduction in the value of the loan book but if you look at some of the costs for 2019-2020 and consider them for the first half of 2020-2021
Advertising and marketing £14.5m
Employee costs £18.0m
Print, post and stationary £3.5m
Credit scoring costs £3.2m

Advertising and credit check should surely drop to close to zero, print and post down as no new applications are being sent, but the employees cost is unclear. There may have been some Job Retention revenue and as there are no new applications to process a drop possibly offset by an increase for more staff to cover complaints.

So who has been buying all these shares Richmond have been selling,
Hargreaves Lansdown Stockbrokers Ltd (10.8%) and Glen Crawford (6%) seem to be some of them.

So we are still in the position of is the company winding down, collecting repayments and repaying its debt or is it about to emerge with a vengeance after the credit check investigation?
COVID is clearly a worry as we are yet to see the real level of redundancies and a lot will depend on how strong the guarantors’ are.

Yet the company has £145m of cash and at 10p per share the market cap is around £50m and up until a couple of years ago a very good business model.

A model that is surely going to be in even more demand over the next year.

Just looking at the numbers, the loan book is back to the 2018 level £640m, down from £707m in 2019 with customers up from 170k in 2018 to 222k in 2020 and the company has started operations in Ireland. By the end of March 2020 they had 3,400 customers with £5.8m, so its just a distraction at the moment.

Where it all starts to go wrong is with revenue of £294mn and the cost of complaints at £126.8m with a provision for £117.5m more.

This is a staggering Impairment:revenue ratio at 38.5% (2019: 23.7%) and is really starting to put the Richmond Group’s comments into perspective.

Although nearly everyone who cared realised that the complaints costs would be high, even on the 8th June there was RNS saying the costs would be materially higher then £35m a previously announced figure, that’s was true it was materially higher.

Yet the annual report seems to be in part in denial about these issues.
These complaints do not represent a clearly identifiable cohort of lending; rather,each is assessed and, where complaints are upheld it is due to the particular circumstances of the case
In the year, we saw the FOS change its approach towards lending decision complaints, which lead to a much higher uphold rate on complaints referred to the FOS than we had previously experienced
More recently, claims management companies have emerged as the major source of complaints.

With a lot of new people it is easy to say it is an historic problem and for the many of the people dealing with the issue it is historic to them but it is not just history to shareholder.

Personally I believe that the company needs to more aggressive in its own defence, especially against claims companies otherwise every borrower will complain regardless of merit swamping an already over burdened business. Bill the claims companies for wasting company time for each frivolous complaint.

I still believe that there is a core of the business that is still profitable although it is very unclear if that core can survive.

As an lesson for me what is much harder to understand is why the share holders sided with the board against the Richmond Group, was it that RGL told the truth and were believed to be exaggerating or that the £20m sale was worth having or that simply they didn’t want to admit to the truth of the situation.

Or was it the James Benamor was seen as part of the problem and simply trying to pass the blame, Superdry has a similar spat between the founder and institutional investors about a year ago, in that case the board lost but we don’t yet know of the founder will revitalise the business.

At the time I did wonder if the RGL commitment to sell was as absolute as it was reported and if it was a bluff that went wrong but it has been happening. Although it is not clear who is buying them as there are no RNS of increased holdings.

So it is a share that will fall to a couple of pence and be worth buying for a recovery from the ashes?

Glen Crawford has been reappointed CEO, so is this good or bad news?

The group has over £100 million in cash, were reporting possible £35m impairments for bad loans and then significantly more than that.

A new CEO could mean a more aggressive approach on these complaints, I am still confused by the problem, person A takes out a loan person B guarantees it and it is the loan companies fault for not checking hard enough that it was affordable.

That is 2 people on the borrowing side who thought that the borrower could afford it, I understand that the borrower may have been desperate and guarantor naive in believing the borrower but who guarantees loans for strangers?

It would have to have been for a close friend or relative.

Even if the whole £100m were needed to resolve this issue, there were still £700m of loans outstanding in March 2019 at 49%.

Glen was originally a lawyer and a founder Cabot Financial a debt collection agency and from the article at the time an appoint of choice for James Benamor as Amigo was still private at the time.

Not much has been said about his objectives, is it possible that the objective is to fix the misspelling issue and continue to operate? There is certainly going to be a demand over the next few years.

Glen stepped down in April 2019 and the FCA investigation covers loans from November 2018 onwards, so was he part of an over aggressive expansion of the loan book, hence part of the problem or does he have a unique insight into both the problem and the future.

With the Richmond Group continuing its sell off, down to 46.6% today is their sell off still on? The sale of 1% of the company every date has been reported as irrevocable and there are no circumstances in which these instructions can be cancelled or amended.

If these instructions really are irrevocable then it won’t be long before Richmomd’s holdings become a non issue.

With Hamish Patton ex CEO joining Provident as the MD of Consumer Credit with the full inside knowledge of the situation at Amigo and the similarities between Provident and Amigo if there isn’t an offer/another offer then Amigo may be in a worse situation then we think even now.

Starting yesterday, Thursday, there appears to be some sort of recovery in the Share Price, meaning that it is now at a “total disaster level” for anyone who has held them for more than a few days, rather than a “Oh well there are heading to zero level”.

The 20p offer was formally withdrawn and a trading update says that there may be more than the £35milion costs associated with the miss-selling, we have to wait for the 2019 results due on or before the 23 July.

This trading update also stated that the company had a £136million cash balance which equates to a share price of around 20p, in other words the old offer price.

With The Richmond Group now apparently committed to its sell off of 1% per day and having passed below 50%, the company can now be considered as no longer owned by one person who would block a sale at 20p.

Given that the board appears to have the support of the majority of the investment funds that held most of the shares that were not Richmond’s we can look at the numbers alone.

A while back I was valuing the shares at around 70p based on the value of the loans plus cash so I think that a sale of the company at 20p would be disappointing. Whether this price was simply one to force the issue of who controls the company and 30p or more would be offered now is unknown.

Well, I got that completely wrong and even with hindsight I still don’t understand what is happening.

I had assumed that Richmond had the handful of private equity people on his side which was clearly not the case with only a trivial number of votes against the board.

Looking at the RNS announcements, 1% of shares in Amigo are being sold by Richmond Group, but it is not obvious where they are going as there are no RNS announcements of increased shareholding by whoever is buying them?

Is this still some sort of bluff, the hope being that whoever offered 20p a share is seeing the amount of the company they can buy diminishing so they need to come up with a better offer quickly? Or are Richmond convinced that the company is close to worthless so are after whatever they can get?

Clearly the number of complaints is increasing and it is hard to understand how aggressively the company will defend itself which is worrying.

Whilst the small number of private shareholders are being hammered here, they’ve lost so much they may think might as well stay in possibly down to zero. What is going on in private between the board, the Private Equity people and Richmond as so much value has been lost.

The Amigo board have seen off the challenge with roughly 91% voting against the Richmond group motions to remove and replace the board.

The Richmond Group said that if this happened it would put its shares on the open market over the next three months, so will they?

If this does happen then someone who was interested in the company is going to be quite happy to buy them at a price that is even lower the 20p per share offer recently rejected.

Looking at it now the market cap is around £60m.

So does this mean that the small shareholders will have 3 months of a depressed share price and then nothing, or a new owner or group of owners and the option to stay and see what happens?

Clearly if the board was willing to sell at 20p then there must be issues that were not well disclosed, but if a new board has the confidence of a new owner then there might still be value.

Especially if the new management adopts the attitude of look both the borrower and guarantor looked at the agreement and signed it, you can’t blame us to the extent that even the amount borrowed doesn’t have to be repaid.

Towards the end of today around about 10 million shares have been traded against an average of 1.5 million, so it may be retail panic or it may be Richmond getting out.

The board has managed to use the Relationship Agreement to block Richmond Group voting them off the board.

Depending upon which side you are on this is a victory for the small share holder who will not be made irrelevant by Richmond’s large share holding or a disaster as it will allow the current board to “give away the company and keep the gravy train running for them”

So who are the 40% of share holders that will vote? There seems to be a handful investment funds that own about 30% of the company so really the decision is down to a very small number of people not investing their own money.

I would be surprised to see them vote to keep the board on unless a substantially better offer for the company is made before the EGM, it is hard to see a worse offer and if the FCA investigation worries them they as still not going to lose much more than they already have.

On April 29 Richmond Group Ltd (RGL), the trading company of the company’s founder and 60% share holder requested an EGM to proposer the removal of the board and its replacement with directors selected by RGL.

The primary reason for this seems to be explained in a blog on the 4th of March.…..Within one year of my stepping down from the board, the most efficient company in the FTSE 250 had become a cash cow for consultants, lawyers and suits, all of whom had an interest in keeping the gravy train running for as long as possible, but no interest in the company being honest with shareholders or customers about the situation it was in…...

On the 20th of May Amigo published details of EGM to be held on the 17th June, it may be worth noting that the 20th of May was legally the last day that such an announcement must by.

This mean that around 7 weeks will have passed between receiving the EGM request and it taking place.

If you believe James Benamor and his…keeping the gravy train running… argument then this may be significant.

The EGM notice was quite clear in stating that the board recommends that share holders vote against its removal and it give its reasons. Yet these reasons were not that the board was doing a great job but were mostly fear and doubt.

Interestingly one of their strongest arguments, that the proposed directors do not have FCA approval for the proposed role has been weakened by the 7 weeks between the request for the EGM and its occurrence. It is quite likely that if approval is going to be granted it will have been granted.

What is critical to me is that RGL have a 60% share holding, so if their nominated directors are appointed what will be the effect on the other 40% of share holders. It may be possible that some deal that benefits RGL at the expense of others could be arranged but is that likely?

Given that the desire to sell the business has been public knowledge for a while it may be that long term share-holders may find themselves forced to sell at a lower price than they paid.

Those whose bought at the float and as late as Aug 2019 will have most bought at between 150p and 300p, and if a sale was agreed by RGL + some other shareholders it will probably be at a lot less than this, given the current price of 22p.

If such a sale were to happen it would hardly be either a surprise or any sign of bad faith.

The other option seems to be to allow the existing board to remain or appoint its own successor’s and pretty much carry on as they are doing now.

Richmond Group Limited, the trading company of Amigo’s founder James Benamor has proposed an EGM believed to be for the purpose of replacing the CEO and chairman and possibly other directors.

James has been reported as believing that the current board is more interested in itself than the company and when I first read that I thought, yes I get that but you are a major shareholder so why just say it?

Richmond Group Limited has also notified the Company that it wishes for the Formal Sales Process to continue.

So a proposal to remove the board and look for buyers both makes sense and isn’t really a surprise.

I found it to be such good news that I did try and buy shares but found that I was only able to buy about £1K worth in 4 £250 chunks using my dealing platform, they do offer a service where you can buy at an unspecified price and I often use this with more liquid shares but it seemed too risky in this case.

Pre COVID 19 I thought that Amigo was a good buy for someone like Non Standard Finance or Provident, someone with an infrastructure relevant to high risk retail lending. Now I have to wonder if the bad debt numbers are going to increase to a point that makes the business unattractive.

How many of the loan guarantors are now in a positon of not being able to fulfil that obligation if required to do so?

The share price dropped at the end of August 2019 when the Q1 results seemed to show a big increase in bad debt provision up to 30% of income from 25% but it also said 94.1% of balances are fully up to date or within 31 days overdue down from 95.7% nowhere near as dramatic a change.

I though the results were okay but the management needed to get on top of the issue of bad debts and possibly going for loan growth over quality but the market disagreed.

The shares were floated at around 286p in June 2018 but seemed to be on a slight but consistent downward drop to 164p in Aug 2019 then settled at around 70p until COVID 19 collapsed many share prices.

So there is a lot of upside for a management team that is dedicated to selling the business and moving on.

I also consider the current price to be relatively safe for the short term as the board replacement seems to be a certainty unless there is some legal issue.

I am unclear on this but there does seem to be a question over whether or not the proposed chairman and CEO, Nick Makin and Sam Wells have the necessary FCA approval for the roles.

This has been highlighted by an Amigo board RNS announcement The FCA has made it clear that the 12 week rule does not apply in relation to RGL's proposed directors. Amigo understands that this position has been communicated by the FCA to RGL.

The 12 week rules is an exception to allow a non approved person to undertake activities that require approval where the absence of the approved person is temporary or reasonably unforeseen, and the appointment is for less than 12 consecutive weeks.

On a blog James says However, it is our understanding that it will not be necessary to wait for approval before they take up their interim roles.

Whether this is going to cause a delay or is just a bit of game playing is unclear as Sam is very experienced in the industry, an ex MD of Amigo!

Amigo has recently said they are suspending new loans to all but key workers. Taken at face value this sort of makes sense as making credit worthiness predictions has to be difficult if you have no idea about the effects of the government’s COVID-19 measures.

But does it indicate anything else?

Recently there has been a big spat between the founder James Benamor and the board, the basis of this seem to be that the board has set in place a policy to make loans that Amigo knows are unaffordable and does not care, simply using the business to get money while the “going is good”.

Of course the board denies this.

It is possible to see this no new lending as the start of winding the business down either to nothing or to a loan book of known good and bad loans to be sold.

The confusing bit for me is that Benamor is still believed to own 61% of Amigo’s shares, so he stands to lose a lot.

Brighthouse, the store that sell goods at very high interest rates has just gone into administration and many of the payday lenders have gone as well. Although Amigo’s model is different they all share the same very high cost of borrowing and a regulator who seems to be starting to side with the borrowers.

At 15p it seems pretty clear that nobody is sweeping up any dirt cheap shares on offer prior to making an offer for the business.

The only saving grace that Amigo has is that it has the ability to file with credit reference agencies non payment records against the guarantor if they are required to make payments and don’t.

I have liked Amigo Loans since it went public in Jun 2018, yet I have also seen that I seem to be in the minority and today, Mon 27 Jan Richmond Group, the majority share holder, has stated their desire to sell.

I did have shares in Accuma an IVA specialist years ago when IVAs seemed to be a booming business and like that sector it may be that the Guaranteed Loan business was always going to have a short life time too.

Once it became popular the “It is someone else’s fault brigade” has got stuck into the company saying that the Borrowers didn’t understand what they were borrowing and the Guarantors didn’t realise that they would actually be expected to pay if the repayments weren’t being made.

I am quite willing to believe that there are some genuine cases where procedures were not followed correctly and the need to make sales overrode everything else, but in such volumes that the business is no longer worth owning?

So why is it up for sale, is it the future is rocky or is it that it is now an established big business which needs managers and procedures and customer complaints departments and this is simply not of interest to Richmond Group?

Looking at the half year to Sept 2019 report key headline numbers were

Net loan book of £730.7m, an 8.8% increase year on year

Impairment:revenue ratio up 7.8ppts to 31.1% (H1 FY19: 23.3%), Yes on £145m of revenue Amigo booked £45m of impairments.

Cost:income ratio, ex-complaints, increased to 20.8% (H1 FY19: 17.8%) 28.0% including complaints provision

Statutory profit after tax 1.9% lower than prior year at £37.0m Adjusted profit after tax of £35.8m, 24.2% below prior year

So I have a suspicion that it a combination of both.

If I were Provident, Morses, NSF etc would I want either the business or the loan book?

The total loan book is about £730m.

If we assume that these loans have a year to run on average then there is roughly £360m in interest and £730 of capital to be repaid, call it £1bn for convenience.

Being very back of an envelope, if we accept the 30% impairment ratio then that means roughly £300m of impairments and 28% cost ratio then that is around another £280m meaning that the debt may be worth around £420m.

Clearly if you are running the business down then there will be no need to advertise so the operating costs should be much lower, but it is easy to see that fees associated with the transaction could wipe put much of these savings.

That equates to a share price of a bit under 100p.

Buying at today’s price of around 50p doesn’t look too attractive to me for the business if you are intending to lay off staff and integrate with an existing operation.

Selling the loan book, winding up Amigo and returning funds to share holders at anywhere between 25p-50p does seem like a credible option.

In this case operational costs could be lower to the purchaser as they already have a collection operation, but these savings may easily be lost in the cost of integrating the business.

Equally impairments may be lower If handled by an existing team, or not as that team needs to be scaled up.

Being neutral, 50% APR for a guaranteed loan seems steep and as guarantors have decent credit ratings, they may be more used to complaining.

The real question is as complaining risks ruining the guarantor’s credit score where will the impairments end up if you run the book down and pursue debt?

Especially if the debt is pursued under the Amigo name and the book owner has no concerns over negative publicity.

A few weeks ago Amigo Loans, one of the big players in the guaranteed loans market, announced its first quarter results and this sent the shares down by about 50%.

This seems to be a result of an increase in expected bad debt up from 25% of the revenue to 30%, whilst this seems horribly high some of this may be a result of accounting changes, accepting bad debt earlier than in the past.

Added to this there are strong concerns that the regulators are going to hit this industry now after Payday Loans and Doorstep Lending.

In particular persistent debt caused by repeat loans and top ups, about 12% of Amigo borrowers have had two or more tops ups.

The other area, loans having to be repaid by the guarantor have remained broadly steady during the last year at just under 10%,

So I went looking at review sites to see what the unhappy customers are saying and there seem to be three types of complaint.

On a blog called Debt Camel there was this question.
I agreed to be the guarantor for a loan for a friend, but he lied to me and couldn’t pay it. Amigo were very difficult, wanting me to stop paying other debts so I could pay them, and got a CCJ. Is it too late for me to complain and ask to be removed as the guarantor?

Which seems to be typical of many complaints by the guarantor, they didn’t really think that they would have to pay. It does appear that Amigo gets into contact with the guarantor very quickly after payments are missed rather than waiting say a year and letting the debt become unmanageable.

The other main complaint is the Amigo ask too many questions before considering a loan and turn some people down, although a few people seem to complain that they or someone else was lent money too easily!

There are also the normal complaints that all financial organisations get; They want me to pay the money back.

The complaints seem to be a combination of what you might expect but to me also suggest that Amigo are very much on top of missed payments.

Given the nature of the business debt has a different meaning to most businesses, the money is borrowed to be lent and the amount out on loan is up to £728.4m from £638.2m and the plan is not to increase this.

So when I consider the above, what look like good numbers and a P/E of about 3.6 I am struggling to see what it is that concerns others so much.

I have looked at Funding Circle and see loses and It’s almost as if people like to invest in companies that are losing money but promise big profits in the future.