Provident Financial caught in the middle of fund manager battle royale

 
Oliver Gill
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Short sellers took profits in December before increasing positions from mid-January (Source: Getty)

Troubled doorstep lender Provident Financial is at the centre of a power struggle between some of Britain’s most revered fund managers.

Mayfair stalwart Lansdowne Partners is leading the charge for short sellers, betting against the fortunes of the Bradford-based bank, and is joined by Carillion conqueror Marshall Wace.

In the opposite corner star manager Neil Woodford is steadfastly supporting Provident and earlier this week upped his stake to 23 per cent. Retail fund giant Invesco also owns 22 per cent of the subprime lender's shares.

Last week Provident Financial said full-year losses in its home credit division would top £120m. The firm was dumped out of the FTSE 100 last year after revealing a number of financial and operational problems as well as a watchdog probe into potential mis-selling of a PPI-style product.

Hedge funds took profits in December, reducing bets against Provident. However, since 10 January they have steadily risen from 13.97 per cent to almost 18 per cent, according to IHS Markit. Mayfair’s change of heart was followed by analysts last week predicting a rights issue had become "increasingly likely”.

Lansdowne, one of London’s oldest hedge funds, has the biggest punt against Provident, holding a net short position of 2.19 per cent, according to regulatory filings. AQR Capital recently added to its bet of 1.84 per cent short. Marshall Wace has the third largest position with a 1.47 per cent short holding.

Read more: Provident shares crash as rights issue becomes "increasingly likely"

Investigation

The Financial Conduct Authority (FCA) investigation into Provident subsidiary Vanquis is the biggest concern to many in the City. Analysts have estimated the cost of redress will be in the region of £300m, though others have suggested it could be more than double this figure.

Facing £35m of lender repayments in the coming weeks, Provident has cash reserves of £34m and £66m of banking headroom at the end of 2017.

Volatility has returned to Provident’s share price since the start of the year, with the recent losses announcement shaking up investors. Meanwhile, a statement from interim boss Malcolm Le May that Provident had "engaged in a dialogue with the FCA" indicated to onlookers the lender no longer expects to get away scot-free from the probe as had previously been hoped.

Shares dipped over five per cent earlier today, before ending trading 1.4 per cent down at 692p.

Provident Financial, Woodford, Lansdowne and Marshall Wace declined to comment. Invesco and ADQ did not respond to a request to comment.

Read more: Former Provident boss attacks doorstep lender's shift towards fintech

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