Stellar fund manager Neil Woodford came out fighting yesterday after his firm and one other investor lost more than £686m combined following the share price collapse of Britain’s largest sub-prime lender.
Shares in Provident Financial plummeted 66 per cent after the company admitted previously downgraded profits would be wiped out altogether, dividends suspended, and that it was being investigated by regulators.
Chief executive Peter Crook has left the firm with immediate effect.
The share collapse marked one of the steepest ever drops for a FTSE 100 company. In 2009 RBS’ stock plunged 67 per cent as it revealed enormous losses, while in 2003 industrial equipment hire firm Ashtead suffered a similar hit due to an accounting scandal.
Despite yesterday’s shock, Woodford, who alongside his former employer Invesco owned 40 per cent of Provident Financial’s stock at the end of July, has staked his reputation on taking a long-term view on investment decisions.
He admitted to being “hugely disappointed” at the news but is convinced the firm will get back on track and “be around for many decades to come”.
“I believe Provident shares started the day undervalued, and have become even more so as a result of the market’s reaction to today’s news,” he said.
Invesco declined to comment.
Meanwhile, champagne corks were popping in Mayfair as markets opened. Hedge funds made over £50m in a matter of minutes from short positions. As shares slid further they ended the day more than £135m up.
Nearly eight per cent of Provident Financial’s stock was on loan according to IHS Markit.
Regulatory filings revealed the largest single position was in favour of Lansdowne Partners, which has borrowed 2.2 per cent the lender’s shares.
“Is this a Northern Rock moment?” asked ETX analyst Neil Wilson. “Probably not – this is more about management failings than a market-wide issue: rivals are taking market share.”
Analysts said Provident Financial could be a target from North American or European peers.
But smaller UK listed players such as Non-Standard Finance or Morses Club would be too small to run Provident Financial’s loan book.
In May, Provident Financial’s market capitalisation was more than £6bn. It is now around £800m.
The firm is almost certain to fall out of the FTSE 100 at the forthcoming reshuffle, and facing the prospect of dropping out of the mid-cap FTSE 350.
The Bradford-based lender said it now expects to post a loss of between £80m and £120m, after downgrading profit guidance to £60m in June.
The Financial Conduct Authority is reviewing subsidiary Vanquis Bank’s Repayment Option Plan.
Hargreaves Lansdown senior analyst Laith Khalaf said the hit taken by Woodford and Invesco’s funds was “disappointing but inevitable”.
But Khalaf highlighted up until the close of business on Monday, Woodford’s funds had outperformed the FTSE All-Share by around five per cent over the last three years.
He added: “You have to take this in the context of the wider portfolio.”