Vanquis Bank swings to annual loss and slashes dividend after jump in impairment charges

Vanquis Banking Group has swung to an annual loss and slashed its dividend after the specialist lender saw a jump in impairment charges, following a profit warning for 2024 earlier this month.

The Bradford-based bank, which primarily services subprime customers, reported a statutory pretax loss of £4.4m in 2023, compared with a £110.1m profit in 2022. On an adjusted basis, it posted a £24.9m pretax profit last year, compared with £126.6m in 2022.

Vanquis’ earnings were dragged down by a £100m year-on-year jump in impairment charges to £166.1m, with £130m coming from its cards business.

It pinned the increase on “higher new originations, reduced benefits of enhancements in IFRS 9 modelling and post model releases compared to 2022, lower debt sale profits and lower revaluation of the post charge-off asset”. The bank added that the underlying credit quality of its loan book remained stable.

Shares in the lender jumped as much as seven per cent on Wednesday morning ahead of a “strategy seminar” this afternoon.

Vanquis swung to a pretax loss of £14.5m in the first half of last year, after which its shares dove 29 per cent.

Chief executive Ian McLaughlin, who joined Vanquis last July, laid out plans in October to save around £60m by 2024, including cutting the bank’s workforce by nearly a fifth, or some 350 jobs.

Vanquis committed in October to delivering an adjusted pretax profit of between £25m and £30m in 2023, revealing today that this figure came in at £24.9m. This number compares with £126.6m in the second half of 2022.

The bank has proposed a final dividend of 1p, which would amount to an estimated shareholder payout of £2.6m. The final dividend compares with 10.3p in 2022.

Vanquis also signalled its intention to pay a dividend of up to 1.0p per share for 2024, with “measured progression” in 2025. The board plans to revisit its capital allocation policy from 2026 after the full implementation of its new strategy.

The bank aims to increase its adjusted return on tangible equity from 3.2 per cent in 2023 to the mid-teens by 2026.

Vanquis’ shares cratered earlier this month after it issued a profit warning for 2024. The company cited a surge in third-party claims that incurred costly administration fees, mainly related to credit cards.

Analysts at Numis slashed their price target on the stock, pointing out that any Financial Ombudsman complaint, “no matter how spurious,” would result in a £750 bill for Vanquis.

Vanquis, which provides motor finance through its Moneybarn business, said it was not a subject of the FCA’s review of historic motor finance commission arrangements, which analysts have warned could cost the auto lending industry up to £16bn in compensation fees.

“Today’s results and strategy seminar highlight the considerable challenges we are managing as we reset our business,” McLaughlin said on Wednesday.

“After a first half loss in 2023, we generated adjusted profit before tax of £30.4m in the second half, reflecting cost management actions and impairment provision releases. We assembled the right leadership team and took some important first steps, creating a healthier mix of price and volume driven growth, simplifying our operating model and taking out costs. We have established solid foundations for the transformation of our business.”

He added: “We do have a period of hard work and change ahead of us. It is still early days, but we are making progress.”

Updated with shares