As if the Credit Crunch in 2008 Was Not Enough. Here We Go Again….

Before the credit crunch, which was a sudden reduction in the general availability of loans along with a sudden tightening of the conditions required to obtain a loan from banks in Britain and North America due to what critics had written off as a willy-nilly approach to assessing affordability, it was easy to get any mortgage or loan for, well, pretty much anything.

It was a case of simply saying “yes, I can afford it” and simply dividing the amount of borrowing by three, stroking one’s chin and saying “hmm, yes, that’s my salary” and the lenders simply granted it and away you go with a free house, free furniture and a free £10,000 to spend on lifestyle trappings of choice.

All very well, except that it was not free, and the lack of affordability checks caused the inevitable – defaults on repayments, home repossessions and banks with an insurmountable level of unpaid debts.

The regulators gave a few disapproving shakes of their collective metaphorical heads, introduced a set of underwriting criteria that required proof of earnings, and removed almost all access to high loan-to-value secured loans meaning that mortgage applicants needed to pay a higher percentage of the purchase price of a property from their own money.

A few years of bruised credit ratings and sore banks ensued, and of course the size of the market for high interest, high risk lending was too much to ignore, so an entire new set of sub-prime lenders became established to do the same thing all over again, only this time with even higher interest. It is almost unbelievable that loans with over 1000% interest can be legitimately issued on today’s credit market.

History does indeed repeat itself, and today, one of the sub-prime, high risk lenders is teetering on the brink of bankruptcy.

Amigo Loans, which is the brand name of Amigo Holdings PLC, which is listed on the London Stock Exchange under the ticker symbol LON:AMGO is a company that lends to individuals with poor credit histories and offers personal loans of up to £10,000 with a guarantor.

Despite insisting on a guarantee from a third party with a good credit rating, the loans are unsecured and require no collateral, and Amigo Loans is experiencing a credit crunch of its own, which according to its executives is ‘considering all options, including insolvency.

Amigo fell into trouble last year, after rules concerning affordability checks were changed once again and hundreds of thousands of its customers were suddenly eligible for compensation and a High Court judge has refused to approve a compensation scheme for customers.

Amigo understood that it did not have the £151 million required to pay customers, so it attempted to establish a scheme which would pay those eligible for compensation 10p for every £1 that they were due.

Amigo has also postponed the release of its results for the year to March 2021, which were due around now. It is hoping to publish them before July 29, however as they say, there’s nothing like a news story to get people interested, and rather weirdly, the price of Amigo Holdings stock has rocketed this morning.

In August 2019, Amigo Holdings stock price collapsed and has been in the doldrums ever since, but since the news that the firm is considering insolvency came about, stock is up 12.61% to 8.22p per share by 9.30am this morning from 7.30p per share at 8.00am this morning.

Shares in the company slumped by 12.1%, or 1p, to 7.3p yesterday, and overall have crashed 97% over the last two years.

A city trader today commented “A sad tale for everyone involved, more so vulnerable customers who will be forced down the route of extortionate pay day lenders charging 1000-1500% APR. Amigo charged a little more than credit cards. Market capital and shareholder value has been stripped. The only option is insolvency or a modification to the SOA to factor a larger slice of the profits for a longer period.”

Amigo Loans did meet the criteria for a London Stock Exchange listing, however, and there have been no short sells this morning on its stock as a result of the news.

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