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Bill Blain On Provident’s Suprime Shock: “Can’t Get Much Worse You’d Think? Oh Yes It Can”

Bill Blain On Provident’s Suprime Shock: “Can’t Get Much Worse You’d Think? Oh Yes It Can”

By Bill Blain of Mint Partners

Blain’s Morning Porridge

Provident Financial. What a mess. Is it an opportunity?

Provident has become the story of the week. In case you missed it: the stock has been hammered and its bonds are trading massively down on the back of multiple bad news bullets: an FCA investigation into the Vanquis credit card and loan repayment options, a failed new technology introduction and new staffing approach that caused a leap in defaults from 10% to 43% (!), suspended dividends and the departure of the CEO.

Ouch.

For years Provident was a respected name, secure in its niche supplying credit to the bottom of the UK credit pool. Its experienced independent door-to-door salesmen managed their clients pragmatically – a personal touch that kept defaults low and recoveries high. Earlier this year the model was turned on its head. The independent door-to-door guys were replaced by I-pad wielding scripted staff controlled by head office. The system appears to have collapsed overnight. Defaults soared.

The firm threw away control of its clients.

Venezuela’s ‘Goldman Bounce’ In Reserves Is Gone

The boost in foreign reserves Venezuela enjoyed after Goldman Sachs investment arm picked up $2.8 billion of…

Muppets.

Provident has been described as “uninvestable”.

It looks like a case of classic management incompetence. Replace a tried and tested functional business model with something new that doesn’t work. But there is more to it. It should remind fixed income investors of the importance of cash-flow – and exactly how cash is collected and overseen. Years of experience has taught us that firms with a tight control of their credit processes and sustainable businesses are the ones to invest in.

 

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