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May 25, 2021, 11:51 a.m. EDT

Shares in subprime lender Amigo lose more than half their value as fears of collapse loom

By Jack Denton

A British court has rejected a controversial plan from sub-prime lender Amigo Holdings which would allow it to cap customer compensation, raising fears of collapse and sending the stock price plummeting.

Shares in Amigo (LON:UK:AMGO) , a guarantor loans lender listed in London, dropped as much as 61% on Tuesday, before settling 55% lower, after the group said the U.K. High Court had not approved its plan. The stock was trading around 8.3 pence (11.6 U.S. cents) and is down near 60% over the last year.

Amigo issues loans up to £10,000 ($14,200) which must be guaranteed by another individual, like a relative, and charges an interest rate of 49.9%.

Facing costs of paying refunds to borrowers and guarantors from cases of mis-sold and unaffordable loans, Amigo proposed a scheme of arrangement with creditors in December 2020 that would cap its liabilities. Under the scheme, customers would receive just a fraction of any successful claim, with the compensation pool capped at £35 million.

“Amigo is incredibly disappointed that the Scheme has not been approved despite the 74,877 customers who voted in support of the Scheme, representing over 95% of those who voted,” said Gary Jennison, Amigos’ chief executive. “We are currently reviewing all our options and will provide an update at the earliest opportunity.”

The scheme was opposed in court by the U.K.’s financial regulator, the Financial Conduct Authority, on the grounds that it was not fair. The company, whose customers typically include people with very poor credit histories, has also come under fire from lawmakers and activists.

“The company’s plan to cap customer compensation was struck out by the High Court, raising yet more questions over the future of the business,” said Russ Mould, an analyst at AJ Bell. 

Amigo’s performance, which analyst Mould called a “horror show,” met a mixed day of trading in London. 

The FTSE 100 (FTSE:UK:UKX) , the index of the top U.K. stocks by market capitalization, ended the day 0.2% lower, , falling behind other major indexes such as the pan-European Stoxx 600 (STOXX:XX:SXXP) and Frankfurt’s DAX (XEX:DX:DAX) , which notched fresh highs on Tuesday.

Also read: European equities return to record highs, with German stocks boosted by $22 billion property deal

“The FTSE 100 was struggling for direction like a drunkard in a blindfold on Tuesday morning, not unfairly given the continuing uncertainties over vaccines versus variants, the risks of inflation and the continuing volatility in the commodity and cryptocurrency markets,” Mould said.

Shares in Argo Blockchain (LON:UK:ARB) , a London-listed crypto miner, rose near 13% after the group said it joined the new Bitcoin Mining Council to “promote energy transparency and improve sustainable mining practices.” The crypto space, and bitcoin in particular, has come under fire from high-profile critics including Elon Musk, the chief executive of electric-vehicle company Tesla (NAS:TSLA) , over its environmental impact. 

Argo and other miners joined in a discussion with Musk on May 23 over environmental and social issues related to the crypto mining. The practice uses large amounts of energy to power computers that verify transactions on the blockchain—the decentralized ledger technology that underpins bitcoin and other crypto assets.

The price of bitcoin (COINDESK:BTCUSD) has declined more than 35% since the beginning of May and was as much as 5% lower on Tuesday.

Plus: Dogecoin, bitcoin prices climb as Elon Musk solicits help to improve meme coin, talks sustainability with miners

Industrial software group Aveva’s (LON:UK:AVV) stock near 2% after the group’s full-year financial results showed sales and earnings outpaced expectations. One of the U.K.’s oldest technology companies, analysts at Swiss bank UBS (NYS:UBS) noted that Aveva showed a strong margin and that its recovery from the COVID-19 pandemic seemed underway.

More broadly, the telecommunications sector was the weakest link on the FTSE 100, with shares in both BT (LON:UK:BT.A) and Vodafone (LON:UK:VOD) falling.

Link to MarketWatch's Slice.