Morses Club sees its shares plunge as it pursues a plan of arrangement
Morses Club shares plunge 40% as future of home loanee hangs in the balance with latest plan to deal with rising claims
- Morses Club saw its share price drop more than 40% today
- The home lender has revealed plans to pursue a plan of arrangement
Morses Club is to enter into a “potential scheme of arrangement” to deal with customer compensation claims which “could jeopardize the future of the group”.
The home-based subprime lender said a central aim of the potential scheme, which has been identified with the Financial Conduct Authority, would be to treat all customers fairly and “settle eligible repair claims” arising from customer complaints on a defined period.
Shares of Morses Club fell sharply following the announcement and were down 42.40% or 3.60p to 4.89p as of midday, having fallen more than 90% last year.
Update: Morses Club have revealed they plan to enter a ‘potential scheme of arrangement’
It is understood that an additional sum of around £45million would have to be set aside in its accounts for the financial year 2022 as an exceptional item to meet any potential claims.
The Nottingham-based AIM-listed group only reported a spike in customer complaints last month, sending its shares tumbling.
The group said in a stock market statement: “While the directors consider that the Morses Club has sufficient liquidity for the immediate future, they believe that without a potential plan, the level of reparations claims could jeopardize the future of the group. ”
“Morses Club will continue to explore alternative options to a scheme, but it is likely that alternative options would result in those with claims for damages being substantially lower than what they would receive under the scheme.”
He added: “Details of any potential program would be announced in due course. The scheme would be subject to the approval of the required majority of affected customers (ie customers who received loans during the period covered by any scheme) and, subsequently, of the court.
For the year through Feb. 25, 2023, which is a “transition year in which issues inherited from the past can largely be resolved,” the group does not expect to make a profit.
But, longer term, the company said market conditions were favourable, due to the exit of other major competitors and the impact of the current economic situation in the UK on customer demand.
The group said: “The board is confident that the group can return to profitability in FY24.”
Gary Marshall, Managing Director of Morses Club, added: “As the UK’s leading home loan provider, we provide a valuable service to thousands of our customers who cannot access traditional credit providers and who probably need even more support given the current situation. economic climate.
“A successful scheme of arrangement would provide more certainty of total liability arising from customer complaints and ensure that we can reshape the business for the future. »
Aware: Morses Club has provided FCA with its proposals and is engaging with them regarding a potential scheme
“The potential program is intended to provide fair settlement to all eligible customers, while securing the future of society and allowing us to continue to provide access to credit to an underserved and growing population.”
In March 2020, subprime lender Amigo Loans was forced to suspend lending after a deluge of complaints from people accusing the company of selling them loans they could not repay.
But, in May, its ongoing dispute over compensation for badly sold borrowers was resolved and its latest trade remedy scheme was finally approved at a hearing in the High Court.
It came amid a crackdown on non-standard finance providers by the UK regulator, which has seen the number of such providers dwindle and big names like Wonga go bankrupt.