Amigo: the subprime lender at war with maverick founder

James Benamor took an unconventional path to become one of the UK’s youngest billionaires. He dropped out of school at 15, turned to petty crime, then later founded Amigo Loans, Britain’s largest guarantor lender that at its peak was worth £1.5bn.

Now he is staging the most unconventional of boardroom battles. Less than two years after Amigo was listed, and as his fortune has been shattered by a collapse in its value, the 43-year-old is seeking to depose the company’s board in a move that risks its shares being suspended from trading.

The fight pitches one of the UK’s most colourful young entrepreneurs against a cast of suited executives just as the lender’s entire business is at risk of collapse.

“Amigo is his life’s work, this is personal for him,” said one person who has worked closely with Mr Benamor. “He is a bullheaded entrepreneur who wants to break through barriers. What he’s doing is unconstructive for Amigo’s share price, but for him it is bigger than that.”

Amigo provides high interest loans to people with bad credit ratings as long as they have a friend or relative willing to bear the risk. For years it has made substantial profits out of lending to troubled borrowers. But now the value of its own debt has crashed to levels suggesting its bondholders are braced for heavy losses and a total wipeout of shareholders.

The company’s performance unravelled last year after it overhauled its lending criteria — reducing loan growth — in an attempt to pacify regulators that were growing concerned about its practices.

At the heart of Mr Benamor’s spat with Amigo’s directors is the way they have handled the snowballing regulatory issues.

The row has played out through blogs and on Twitter, where Mr Benamor has accused Amigo’s directors of mismanaging the company, lying to investors and customers, and allowing the business to become a “gravy train” for “consultants, lawyers and suits”.

Amigo has hit back, hiring libel lawyers in an attempt to stop journalists from quoting the blog and calling his claims “fundamentally incorrect”.

The showdown will come on Wednesday, when Amigo’s shareholders will vote on whether to approve the boardroom clear-out. A court injunction brought by Amigo has banned Mr Benamor, who owns 61 per cent of the company through his Richmond Group vehicle, from voting. In return, Mr Benamor has threatened to sell down his entire stake by 1 per cent a day if Amigo’s minority shareholders go against him.

“What happens to the share price in those 61 days is anyone’s guess,” said one person close to the lender.

If Mr Benamor is successful, the company, which had 230,000 customers and a loan book of £722m at the end of last year, could become inoperable, Amigo has claimed. Neither of his two nominee board directors have regulatory approval to run a financial services business, risking its place on the stock market.

‘Slow-motion suicide’

Mr Benamor quit Amigo’s board just two months after it floated on the London Stock Exchange in 2018. “He was never a good fit for a director of a listed business. What every button did on the website was far more interesting to him than going out to meet City types to try and raise funding,” a former colleague said.

He ditched the boardroom in favour of new ventures, including acquiring Bestival music festival, investing in education technology, charity hiking trips with his friend and mentor, Richard Branson, and spending time with his eight children.

Since then, Amigo’s share price has collapsed — plunging from 275p after the float to just 15p on Friday, taking the company’s value down to around just £70m. The crash followed pressure from the Financial Ombudsman Service on the company to overhaul how it judged borrowers’ ability to repay their loans. That was accompanied by a 20 per cent surge in complaints from customers, 94 per cent of which were upheld by the Ombudsman, forcing Amigo to put tens of millions of pounds aside to make repayments.

Mr Benamor forced his way back on to Amigo’s board in December for just four months. He claimed to have found during that time that the lender was rapidly refunding almost all of its customers’ complaints to mollify the Ombudsman but had continued to lend in the same way as before.

“During my short time back on the Amigo board, I have witnessed a company committing slow motion suicide, whilst playing out the script of Brewster’s Millions,” Mr Benamor wrote on a blogging site in March.

The entrepreneur said the Ombudsman was exhibiting “unchecked regulatory power” and that the board should take it to court for an independent ruling on whether Amigo’s affordability checks were adequate. Until then, Amigo should immediately cease lending, he said.

“These are maximum impact statements designed to force the issue of whether Amigo has an existential problem with its loans out into the open,” said one person with knowledge of the company. “He doesn’t believe that there is a problem, but the issue is that you can believe your own hype too much. He could be wrong.”

Amigo has previously said it carried out a review that concluded there were no “systemic” problems in its approach to lending. 

‘Regulators could end this business’

There is speculation among investors and fund managers that issues with Amigo’s loans date back to 2016 when the company started “pilot lending” to target customers who would not normally meet borrowing criteria.

“It was an opportunity to rapidly make more money,” a consumer debt expert said. “But Amigo has grown its loan book so dramatically since then that what wasn’t a very big problem in 2016 could now be a sizeable one.”

Scrutiny of the company has increased — this month the Financial Conduct Authority launched an inquiry into its lending — and the focus is set to sharpen as the economic downturn triggered by coronavirus forces more people to turn to alternative sources of capital.

The FCA is investigating Amigo’s checks on customer creditworthiness for loans provided since November 2018, having expressed concerns about the rapid expansion of the guarantor loan sector in a report in February. Amigo controls more than 80 per cent of that market.

One person close to the company said: “No one in the City has the inside track on this, it all comes down to what the regulator finds.”

One short-seller was more abrupt, warning that “regulators could end this business”.

The regulatory action has spooked Amigo’s lenders. The company’s £315m of junk bonds have slumped to less than 50p in the pound, suggesting debt investors believe they are likely to lose most of their money.

Amigo put £18.7m aside last year to cover the cost of complaints and announced this month that it needed at least £35m to clear a further backlog. Its provision for complaints is expected to be significantly increased when the firm reveals its annual results this month. Amigo made pre-tax profits of £53.5m in the nine months to January, down from £79m a year earlier.

Crunch time

Mr Benamor’s actions have prompted much speculation in recent weeks. Some critics have condemned his methods. “Twitter is not an appropriate platform for making majority shareholder announcements,” said the person close to Amigo.

Others have questioned his motivation. “He is doing his best to distance himself from Amigo’s management if it does turn out that the decisions have been bad,” said a second person close to the situation. Mr Benamor declined to be interviewed for this article. Amigo declined to comment.

On Wednesday, Mr Benamor will either attempt to change the path of the company he founded, or walk away completely. He has nominated Sam Wells, a former Amigo executive, to take over as chief executive, while Nick Makin, a solicitor, would become independent chair of the lender.

John Cronin, an analyst at stockbroker Goodbody, said: “I think [Mr] Benamor is ultimately taking these actions to stimulate clarity from a regulatory perspective, which would potentially be constructive in a valuation context.

“Self-preservation is also likely to be a key motivation, with his actions suggesting he is seeking to protect his own reputation if Amigo does end up failing.”