Tuesday28 January 2020 ★ FINANCIAL TIMES 19
UK COMPANIES
Say it with roses on Valentine’s Day,
urge florists.Royal Bank of Scotland’s
Alison Rose, chief executive of three
months, is about to do just that. She
will outline her vision for the bank on
February 14. But it won’t read like a
love letter. The Sunday papers have
primed staff to expect up to 3,700 job
cuts — 6 per cent of the total.
Ms Rose — an RBS lifer whose
spectacles seem anything but rose-
tinted — has already spoken of the
bank’s unnecessary complexity and
“tough choices” and watched as top
bosses of NatWest Markets, the group’s
lossmaking investment bank,have
quit.
RBS’s third-quarter numbers in
October laid bare the weakness of tying
up too much capital in NatWest
Markets. Even pared back, the
investment bank still uses up a quarter
of RBS’ risk-weighted assets and eats
into group-wide returns on equity.
In October, RBS said it would not
meet targets of 12 per cent ROE and a
50 per cent cost-to-income ratio.
Analysts have pencilled in ROE of
nearer 8.5 per cent for 2020.
If RBS is to cut its risk-weighted
assets by a 10th, analysts have
estimated about 1,000 jobs out of
perhaps 5,000 at the investment bank
are for the chop. Now, amid fears the
Bank of England will cut interest rates
again over the next few days, there is
talk that 3,000-plus jobs may have to
go across the bank.
Ms Rose is remaining tight-lipped
until Valentine’s Day. But net interest
margins have already been squeezed
by increasing costs and competition on
mortgages from the likes of HSBC.
The effect of the “Boris bounce” on
the shares has eased a little but they
still trade at about 9.5 times expected
earnings and 0.7 times tangible book
value, according to Bloomberg. That is
midway betweenLloyds expected(
ROE 11 per cent) trading at par to book
value andBarclays expected ROE 6(
per cent) trading on 0.5 times.RBS has plenty of surplus capital to
cover the costs of restructuring, which
may be to the good for investors in the
long term. However it will come at the
expense of their short-term returns
through share buybacks or dividends.
Bank investors, including the
taxpayers who still own 62 per cent of
RBS, should brace themselves for tough
love from the unflowery Ms Rose on
February 14.Amigo seeks new owner
The more you see, the less there is to
like. Two months ago,James Benamor
returned toAmigo, the guarantor loans
group he founded and in which he and
his family retain a 61 per cent stake. He
took a board seat at the cost of the less
gung-ho chief executive and chairman.
Now he cannot get shot of Amigo fast
enough. Seven weeks in the boardroom
and Mr Benamor has become a “willing
seller”, the company revealed
yesterday. A strategic review and
formal sale process re in train.a
There are plenty of reasons to steer
clear of Amigo. It offers loans tosubprime borrowers who can find
friends or family to stand behind their
debt. Borrow £4,000 and 36 months
later you repay a tear-jerking £7,000.
That certainly makes the eyes of
regulators and consumer watchdogs
water. Amigo frets about increased
pressure and a post-PPI crackdown
from the Financial Ombudsman
Service. Each complaint costs Amigo.
That said, protests to the FOS are still
few in number, though the data are not
up to date. Amigo has high margins,
low leverage and its shares are cheap
compared with peers: 3.8 times
forward earnings compared with
Provident Financial’s 9.4 times and
Non-Standard Finance’s 6.2 times, S&P
Global data show.
That might tease out a buyer. But
NSF already has a big guarantor-loan
business. A combination would not
easily get a green light from
trustbusting authorities.
The Provvy is still recovering from
fending off NSF’s takeover offerlast
year. Private equity-backedNew Day
also operates in lending to borrowers
with less than rock-solid credit
histories but has avoided the riskiestend of the market. Mr Benamor is
clearly prepared to sell at a knockdown
price. The sale of a 21 per cent stake
fetched him £280m when Amigo
floated in 2018. Now that would buy
him the whole company. He advises
Twitter followers the biggest pitfall for
investors is to double down on bad
bets. The question is how low he would
go to rid himself of a bet going bad.Conduct unbecoming
This month, The Pension Regulator
levied a £9.5m fine against Dominic
Chappell, the thrice-bankrupted
former owner of BHS. It was surely
more certain of its latest target’s ability
to pay up. Which it did. The Financial
Conduct Authority paid £2,000 after
pension fund trustees skimped on
information to members. That cannot
be how the two watchdogs envisaged
things two years ago when they
promised joint action to “deliver better
pension outcomes for pension savers”.[email protected]
Amigo: [email protected]Alison of RBS will say it with prickly roses on Valentine’s day
Shares in etra DiamondsP ellf more
than 12 per centyesterday after the
London-listed miner said that sales for
thepast six months of 2019had fallen 6
per cent due to lower diamond prices.
Petra, which owns the Cullinan mine
in South Africa, said average prices for
its diamondshad fallen 3 per cent in
the six months ending December 31 to
$111 a carat due to weakness in the
global diamond market.
The diamond market has been hit by
a slide in demand in Hong Kong due to
protests, as well as an oversupply of
smaller rough diamond stones. Last
weekDe Beers, the diamond miner
said it had cut its production15 percent in the fourth quarter of last
year in the face of weaker prices.
“We are... cautiously optimistic
on a pricing recovery in diamonds in
time as supply discipline continues
from the major producers in the
sector,” said analysts at RBC.
Petra said revenues for the 6
months to December 31 were
$194m, compared with $207.1m a
year earlier. The company, which
has $596.4m in debt, said it was on
track to meet its full year 2020
production guidance of around 3.8m
carats.
Shares last night traded down 12.
per cent at 9.37p.Henry SandersonCarat and stick
Lower prices
weigh on Petra
Diamonds
TA N YA P OW L E Y A N D R O B E RT S M I T H
Flybe mortgaged off the majority of its
remaining assets to its shareholders last
year, potentially complicating the UK
government’s efforts to provide a loan
on commercial terms to the struggling
UK airline.
Connect Airways — a consortium of
Virgin Atlantic,Stobart Air nd hedgea
fundCyrus Capital —formally took over
the troubled regional airline last year
with the members of the consortium
also providing loans to Flybe.
UK corporate filings show that Flybe
received a loan from the three share-
holders in February 2019 that required
the airline to pledge assets such as
buildings, equipment and intellectual
property as collateral. A person familiar
with the matter said the loan agreement
covered the majority of Flybe’s assets
that it had not already offered as secu-
rity to previous loans.
Corporate filings show that many of
the company’s aircraft were already
mortgaged in earlier rounds of financing
from specialist lenders.
Flybe’s decision to pledge most of its
remaining assets last year, a move that
was first reported by The Times, makes
it highly likely the UK government
would have to offer an unsecured loan in
order to rescue the airline.
The government has stressed that any
loan to Flybe would comply with EU
state aid rules, meaning it would have to
be provided on the same commercial
terms that a bank would offer.
Mark Anderson, chief executive of
Flybe, also indicated this month that the
loan would be “the same as any loan
we’d take from any bank” and that it
would not be a “bailout”.
As banks would typically demand a
very high interest rate for an unsecured
loan to a troubled airline, even for short-
term funding, the lack of collateral
Flybe can offer could make it difficult
for the government to devise a sustaina-
ble solution.
Ministers are now using Alvarez &
Marsal, hich specialises in companyw
restructuring, to assess how to draw up
a commercial loan for the airline, two
people familiar with the matter said.
The FT reported last week that Flybe’s
owners are seeking a £100m short-term
loan from the government, in exchange
for an agreement to invest more capital
into the business.
There is no guarantee that the govern-
ment will accept Flybe’s request.
“We are currently working with our
shareholders and the government, all of
whom are very supportive of the busi-
ness, in order to deliver our long-term
strategic plan,” said a spokesman for
Flybe. “Throughout this process, we are
continuing to provide great service and
connectivity for all customers travelling
on our network.”
The government’s multipronged
rescue deal for Flybe also included a
short-term deferral of less than £10m of
its air passenger duty, APD. That delay
came through an existing HM Revenue
& Customs scheme called “Time to Pay”,
which is used by hundreds of thousands
of companies every year.
Additional reporting by Jim PickardAirlines
Flybe rescue
complicated by
mortgage deals
Government may have
to fund airline through
unsecured loans
Jock Fistick/BloombergN I C H O L A S M E G AW
R E TA I L BA N K I N G C O R R E S P O N D E N T
When subprime lender Amigo
reported its first half-year results as a
public company, its then chief execu-
tive,Glen Crawford, insisted e wash
“entirely unfazed” by anything that
founderJames Benamor ight do.m
A little over a year later, Amigo’s current
management would struggle to muster
such apparent unflappability.
Shares in the London-listed company
fell29 per centyesterday after the
group, whose business model has drawn
increasing scrutiny from regulators,put
itself up for sale. The decision follows
the latest intervention from Mr Ben-
amor, who Amigo described as a “will-
ing seller” of his 61 per cent stake.
Just two months earlier, Mr Benamor
had returned to the board, triggering
the exit f its chief executive and chair-o
man. Yesterday’s announcement
capped an 18-month rollercoaster that
has seen Amigo go from one of the fast-
est-growing financial groups in the UK,
with an eye-watering return on equity
above 45 per cent, to one facing the
potential implosion of its entire market.
Founded in Bournemouth in 2005,
Amigo pioneered “guarantor loans” —
offering credit to customers with poor
credit histories as long as they have a
friend or family member who can step
in if there is a default.
The market more than doubled in size
between 2016 and 2019, according to
the Financial Conduct Authority, with
Amigo’s £730m loanbook accounting
for over 80 per cent of the total.
The presence of a guarantor helped tominimise credit losses.The company,
which charges a flat interest rate of 49.
per cent, also benefited from the demise
of more priceyrivals like payday loans,
then in the crosshairs of regulators.
“There were always some investors
who didn’t want to do subprime lending
full stop,” said one person who worked
on its IPO. “But the people who were
comfortable about subprime loved
[Amigo].”
Its investors includedNeil Woodford,
the former star UK stockpicker, and US
asset managerInvesco.
But the stock’s 82 per cent eviscera-
tion since the IPO suggests those who
were wary were also prescient. Accord-
ing to Dealogic, Amigo’s is theworst per-
formance of any UK PO that raisedI
more than £10m in the past three years.
Mr Benamor, a father of eight who wasa paper billionaire before Amigo’s pre-
cipitous share price decline, initially
stepped down from the boardafter the
IPO, amid reports of tensions with the
board and plans to set up a rival lender.
Richmond, Mr Benamor’s investment
vehicle, also said it was considering cut-
ting its Amigo stake last June, butin
Novemberreclaimed two board seats.
Newchief executiveHamish Paton
announced his resignation shortly after,
while chairmanStephan Wilcke aid hes
would not stand for re-election.
Mr Benamor and Richmond declined
to commentbut people familiar with
the matter said at the time that the exit
of the CEO and chairman followed a dis-
agreement over strategy.
Amigo’s growing size andprominence
had drawn more attention from the
Financial Conduct Authority, whichvoiced concerns about guarantor loans.
Mr Patontried to pre-empta crackdown
byoverhaulingAmigo’s business to
invest in compliance and reduce its reli-
ance on repeat customers.
The potential impact of the regula-
tory uncertainty will now be key to
determining Amigo’s attractiveness to
anypotential buyer.
Analysts pointed to listed groups
Provident Financial nda Non-Standard
Finance s potential suitors, along witha
privately heldNewDay r a privateo
equity firm. “Either Amigo offers excel-
lent value, its profitability collapses, or
there is a very high probability of insol-
vency,” said James Hamilton, an analyst
at Numis, summing up thediverging
possibilities facingpotential buyers
However, Provident and NewDay are
unlikely to make a move,according topeople familiar with the matter.All
three companies declined to comment.
In a trading updateyesterday, Amigo
said it was “confident in the robustness
of its approach to lending decisions”.
Despite its concerns about certain
practices, the FCA has stressed its desire
to maintain access to regulated credit
forvulnerable consumersand those
with poor credit histories.
Another person close to Amigo said:
“The question people have to ask is,
should people be allowed to access
credit if something has happened that
means.. .they can’t access prime
credit? If the answer is yes, then guaran-
tor should be an option.”
Little more than a year since Amigo’s
IPO, the company’s beleaguered inves-
tors will be hoping someone agrees.
See LombardBanks
Amigo shares tumble as subprime lender puts itself up for sale less than 2 years after IPO
DA N I E L T H O M A SAlmost half a million UK businesses rea
in significant financial distress, the
highest numberrecorded, according to
Begbies Traynor, the insolvency firm.Data from the restructuring specialist
found that businesses outside London in
particular had shown signs of financial
difficulties, raising additional questions
for Boris Johnson’s government as it
talks about levelling up’ growth in the‘
regions.
Although almost 126,000 London
businesses exhibited signs of significant
distress, according to Begbies, more
than 358,000 businesses in other UK
regions were struggling.
Begbies defines “significant distress”
as those businesses with minor county
court judgments claiming for debt
repayments of less than £5,000, or those
which have been identified by a credit
risk scoring system that analyses
financial ratios and indicators including
working capital, contingent liabilities,
retained profits and net worth.
“This latest data... suggests thatUK
businesses are continuing to struggle as
the economy slows,” said Ric Traynor,
executive chairman of the Manchester-
basedfirm.
“If this trend of rising significant dis-
tress continues we could, for the first
time, witness financial distress creeping
over the half million milestone.”
The findings were released days
before theBank of England ets interests
rates on Thursday.
Last week, akey business activity
survey found that the majority of com-
panies were reporting expanding activ-
ity. However Britain’s retail sector has
endured ts longest spell of no growthi
since comparable records began in 1957.
Begbies found that the number of
businesses in significant financial dis-
tress rose to 494,000 in the last quarter
of 2019, compared with 481,000 in the
same period the previous year.
Of the 22 sectors monitored by Beg-
bies Traynor, 15 saw increased levels of
significant financial distress between
the third and fourth quarters of 2019.
Younger companies, formed after 2014,
were more likely to have issues.
The rise in companies reporting diffi-
culties was spurred by problems inreal
estate and property, support services,
construction and retail sectors in
particular.
Numbers of businesses in significant
distresshave risen 1 per cent since the 8
start of 2016.
Julie Palmer, partner at Begbies
Traynor, said: “Businesses and the
UK economy as a whole will want to
avoid a repeat performance of 2019,
where distress increased to record levels
on the back of ongoing uncertainty
around Brexit. These figures clearly
demonstrate the impact of this indeci-
sion.”
The numbers of real estate and prop-
erty businesses in significant distress
rose 13 per cent in the year to 53,000.
Begbies’ data showed that property
investors were particularly struggling,
with a 30 per cent rise in companies in
distress to 15,033.
The firm said that this reflected fall-
ing construction output, and election
and Brexit uncertainty.
About 7 per cent more companies
involved in the construction sector suf-
fered significant financial distress when
compared with the last quarter of 2018.
There was only a modest rise in the
number of retailers in distress since the
last quarter of 2018, rising 2 per cent to
31,615, but online retailers have started
to be hit harder, with an 8 per cent year-
on-year increase.Survey
Number of
distressed UK
businesses
climbs to
record high
Kate
Burgess
JANUARY 28 2020 Section:Companies Time: 1/202027/ - 20:00 User:andrea.goddard Page Name:CONEWS4, Part,Page,Edition:LON , 19, 1