Amigo Loans has become something of a poster child for the Guarantor loans industry. Ever since the business was established in 2005 it has been a pioneer of the guarantor loans concept. It’s also one of the industry’s most successful lenders, was the first dedicated guarantor lender to obtain FCA authorisation and is even trading on the London Stock Exchange. However, Amigo seems to be about to hit some rather choppy waters with recent announcements indicating that the lender is expecting “broadly flat” results for the rest of the year.

The latest figures from Amigo

According to the latest results from Amigo Loans, the business saw an increase in both revenue and pre-tax profits in the first quarter of 2019. In the period up to 30th June revenue increased from £62.9 million in the same period last year, to £71.3 million in 2019. Profits also rose, increasing from £17 million to £22.6 million for the same period. Not only has Amigo seen positive growth in its figures for the first quarter of the year but it continues to attract more customers too. It revealed a rise in its customers to 210,300 from 179,300. However, despite these apparently incredibly positive figures, shares in Amigo have plunged in value – so, what’s going on?

Regulatory reform and Brexit

At the end of August this year, shares in Amigo – which is a  FTSE 250 company – suffered a big dip. In fact, the value dropped by in excess of 40%. There are two key reasons that have been identified as being behind the loss of confidence that triggered the reduction in value of the shares.

1. A regulatory crackdown. The Financial Conduct Authority (FCA) has recently raised concerns over the business model employed by guarantor lenders like Amigo. A senior official from the FCA warned earlier this year that the regulator would be closely monitoring the industry, in particular because guarantors were more frequently being relied upon to pay off borrowers’ debts.  The regulator has also voiced concerns about the interest rates being charged by guarantor lenders – these typically range from 39.9% to 59.9%. Amigo itself has acknowledged the “potential for regulatory change” that may be incoming and has set plans in motion to adjust its business model as a result. Amigo chief executive Hamish Paton said Amigo was being “proactive and pragmatic” by changing its strategy before an FCA intervention.
2. Operational challenges. Potential problems for Amigo have also been identified by its management team as operational challenges in the form of impairment costs. The lender said that these had been increased in response to the situation that was likely to arise in the event of a No Deal Brexit and the impact that this was likely to have on consumer confidence.

Can Amigo survive?

The short answer is: probably yes. Although many commentators have identified the dire warnings from the company for the rest of 2019 as problematic – as well as the slide in the value of shares – it’s unlikely to be the end of the road for Amigo. According to analysts at RBC:

“Whilst these actions will likely adversely impact short-term profitability, we see them as sensible for ensuring longer-term sustainability of a business that remains a leader within a global market.”

The fact that Amigo is being so proactive in terms of taking steps to try and pre-empt the changes that are likely to be the result of Brexit and/or any regulatory changes that are made by the FCA is likely to be seen as very heartening by many.

Why are guarantor loans so popular?

Amigo has built its business on offering guarantor loans to customers who have bad credit and would be unlikely to obtain finance on their own. The loans are designed to be supported by a guarantor – a friend or family member who effectively agrees to take over repayment of the loan if the original borrower is unable to do so. This model appeals to a very wide range of borrowers, from students with no credit record at all to individuals who are trying to repair their credit history by making regular repayments on a loan. Amigo’s CEO has continued to make the point that guarantor loans fill a gap in the market for many consumers today. There are large numbers of borrowers who simply wouldn’t be able to obtain traditional finance from a bank or building society and it’s these people who may find Amigo’s guarantor finance particularly helpful.

The latest results from Amigo indicate that the business has done well so far this year but is anticipating some tough times in the near future. From FCA intervention to the impact of Brexit there are certainly some challenges ahead.

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