RUTH SUNDERLAND: FCA’s high-stakes bluff with Amigo Loans

When you are a City watchdog, it’s hard to win. The Financial Conduct Authority has rightly been excoriated for being missing in action over Woodford, London Capital and Finance, and Greensill.

Now it is being criticised for being too tough with Amigo, the sub-prime lender. The FCA argued a scheme to compensate mis-selling victims was too miserly and a judge agreed. 

Amigo had said that if its proposals were not accepted, it would go bust and borrowers would end up with nothing.

The Financial Conduct Authority is being criticised for being too tough with Amigo after arguing a scheme to compensate mis-selling victims was too miserly and a judge agreed

I have some sympathy with the FCA for trying to obtain a better deal for customers. In coming days we will find out whether it was right to call Amigo’s bluff. 

One question is where additional money will come from. The FCA and the court believe more cash can be found behind a sofa, despite Amigo’s arguments to the contrary.

It seems unlikely shareholders will stump up more, given that around £100million has been wiped off the market value in the last couple of weeks, taking it down to £40million after the court ruling yesterday.

Any notion that there are rich City investors to be tapped is wide of the mark. A quirk of the Amigo share register is that it is dominated by 8,000 private investors, with just two large institutions: Bybrook Capital, with around 12 per cent, and Abu Dhabi’s Mubadala Investment Company, which has around 6 per cent. 

If a settlement scheme cannot be reached, insolvency is a real possibility.

Shareholders would be wiped out and the Amigo loan book and any other residual assets would probably be bought for a song, perhaps by private equity. Borrowers would receive no redress.

That can still be avoided, but it very disappointing that the company and the regulators could not agree a solution before reaching this point. 

The debacle shines a light on the wide and dangerous gap in the market for borrowers who cannot obtain loans from the mainstream banks.

Many people fall into this category. Amigo has 500,000 customers and the same number of guarantors. If it leaves the field, along with firms such as Provident Financial, which has proposed a similar run-off scheme, these borrowers have few options.

The FCA notion that friends and family will step in is laughable. Officials seem to think Britain’s most quintessentially middle-class financial institution – the Bank of Mum and Dad – flourishes in poor communities. 

In Amigo country, people have barely enough money to support themselves, let alone bail out relations.

Those of us fortunate enough not to need them may feel the activities of the UK’s sub-prime lenders are distasteful, but they fulfil a need. 

If the FCA wants to provide a real service, it should clamp down harder on unscrupulous claims management companies, which charge large fees for a job customers could do themselves at no cost.

There is no situation so bad they cannot make it worse. They truly are the carrion crows of the financial services industry.

New deal for steel

The sell-off of Sanjeev Gupta’s UK steel assets brings fresh urgency to government plans to put the industry on a sustainable footing. Over the past 30 years steel has lurched from one crisis to another.

Government policy, whether Conservative or Labour, has been reactive and ineffectual. Ministers have, through sheer expediency, unfurled the welcome mats to undesirable owners, including the Chinese.

The current approach is two-pronged. First, help the industry to decarbonise. Second, Brexit brings a real opportunity to revolutionise public sector procurement, now there is no longer a requirement to advertise contracts across the EU.

It would be crazy, at a time when we are planning a vast green recovery programme, if we did not source the bulk of the steel from the UK. 

Nationalisation of Gupta’s interests should be, as Business Secretary Kwasi Kwarteng says, a last resort, but there could be imaginative solutions involving the private sector.

Three years ago BAE Systems, Rolls-Royce and Babcock teamed up to backstop loans to keep Sheffield Forgemasters, a supplier for military submarines, from falling into Chinese hands.

Perhaps Forgemasters is a template, or at least the germ of a plan. But the false notion steel should be left entirely to the free market no longer holds sway.

Every government in the world subsidises its steel industry, the only question is the most effective way to do it.

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