Elephant shackled by sub-prime woes
Britain’s sub-prime lending market received another kick from the credit crunch yesterday as Elephant Loans & Mortgages issued a profit warning and announced an escalation in its losses for the first half of the year.
Elephant, which arranges loans between banks and customers with poor credit records, said in a trading statement that its “cash position remains tight”, after it revealed a 52 per cent increase in pretax losses for the half-year to September 30.
Elephant’s plight highlights how severely the credit crunch has hit the sub-prime end of the British market, as lenders face the indirect consequences of the crisis that is shaking their American counterparts. As a channel between specialist lenders and high-risk borrowers, Elephant has been particularly exposed, as banks tightened lending criteria because of illiquidity in money markets.
The company said: “It would be prudent to assume that results for the year will be below the market forecasts made last summer due to the weak performance during the first half and the continued impact of the credit crunch.”
The broker gave warning in October that conditions had deteriorated and spun off DebtSmashers, its personal insolvency division. It also said that it would consolidate its Cardiff, Ashford and Peterborough offices at its headquarters in Twickenham, West London.
The AIM-listed company said yesterday that the cost-savings measures were beginning to reap rewards. Losses from DebtSmashers accounted for £295,000 of the total losses for the six months to September 30. Group losses widened to more than £1 million from £667,000.
Yesterday its shares slid 3.13 per cent to 0.47p, a fraction of the 3p price at which they floated in November 2005 and their 4½p peak two years ago.
However, the company said that its commissions had been boosted by clients with good credit histories being pushed towards sub-prime lenders by tighter lending criteria.
Don Hammond, the Elephant chairman, said: “The business has had to face a challenging and turbulent period . . . Difficulties in both the sub-prime market and IVA [individual voluntary arrangements] sectors have been well documented and there has been a substantial realignment of mortgage and loan products in the sub-prime sector.”
As well as the indirect impact of the American sub-prime crisis via the credit crunch, Britain could face its own sub-prime turmoil, experts say.
James Ketchell, a spokesman for the Consumer Credit Counselling Service, said: “It takes time for these things to filter through. It will be January or February for people who might have been able to make payments getting into a downward spiral of debt.”
KPMG, the accountancy firm, has forecast that a record 130,000 people will declare themselves bankrupt or will enter individual voluntary arrangements in 2008, compared with 110,000 for the year to September this year.
The Royal Institution of Chartered Surveyors estimates that the number of home repossessions will soar by more than 50 per cent, to 45,000, next year.
It was a surge in defaults in sub-prime mortgages that sparked the credit crisis, as banks were unwilling to lend to one another because of uncertainty over other institutions’ exposure to financial vehicles backed by high-risk mortgages.
However, the British sub-prime mortgage sector, estimated at between 7 per cent and 9 per cent of the market, is smaller than that of the United States. Lenders also have not launched mortgages with low introductory rates to lure risky borrowers, which was the case in America, because of the comparative shortage of housing supply in the UK.
Knock-on effect
May 30 Kensington Group, Britain’s largest sub-prime mortgage lender, agrees to a takeover worth £283 million, or 519.5p a share, from Investec, 8 per cent below its market price before the offer. Its share price had slid from a peak of £12 in 2006
September 1 Lehman Brothers announces it is to shed up to 150 jobs at its London-based mortgage division, which includes brands such as South Pacific Mortgage Limited. The toll rises later to 225
September 10 Victoria Mortgages, a sub-prime lender, goes into administration after its funding is removed. Its collapse comes days after Kensington Group said that it was temporarily halting business
September 24 Kensington Group reduces the amount it lends to 75 per cent of a property’s value
October 9 GMAC-RFC says it is to close High Street Home Loans, a sub-prime division, and will shed 200 jobs
December 3 The American owner of Goldfish credit cards blames the deteriorating British consumer credit environment for a $422million write-off in the value of the lender – a quarter of its value
December 28 The Times reports that Marbles, the private equity-owned card provider aimed at high-risk borrowers, is increasing its prices for taking cash by 10 percentage points to 33.9 per cent. Rates for retail transactions increased from 19.9 per cent to 26.9 per cent
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Britain’s sub-prime lending market received another kick from the credit crunch yesterday as Elephant Loans & Mortgages issued a profit warning and announced an escalation in its losses for the first half of the year.
Elephant, which arranges loans between banks and customers with poor credit records, said in a trading statement that its “cash position remains tight”, after it revealed a 52 per cent increase in pretax losses for the half-year to September 30.
Elephant’s plight highlights how severely the credit crunch has hit the sub-prime end of the British market, as lenders face the indirect consequences of the crisis that is shaking their American counterparts. As a channel between specialist lenders and high-risk borrowers, Elephant has been particularly exposed, as banks tightened lending criteria because of illiquidity in money markets.
The company said: “It would be prudent to assume that results for the year will be below the market forecasts made last summer due to the weak performance during the first half and the continued impact of the credit crunch.”
The broker gave warning in October that conditions had deteriorated and spun off DebtSmashers, its personal insolvency division. It also said that it would consolidate its Cardiff, Ashford and Peterborough offices at its headquarters in Twickenham, West London.
The AIM-listed company said yesterday that the cost-savings measures were beginning to reap rewards. Losses from DebtSmashers accounted for £295,000 of the total losses for the six months to September 30. Group losses widened to more than £1 million from £667,000.
Yesterday its shares slid 3.13 per cent to 0.47p, a fraction of the 3p price at which they floated in November 2005 and their 4½p peak two years ago.
However, the company said that its commissions had been boosted by clients with good credit histories being pushed towards sub-prime lenders by tighter lending criteria.
Don Hammond, the Elephant chairman, said: “The business has had to face a challenging and turbulent period . . . Difficulties in both the sub-prime market and IVA [individual voluntary arrangements] sectors have been well documented and there has been a substantial realignment of mortgage and loan products in the sub-prime sector.”
As well as the indirect impact of the American sub-prime crisis via the credit crunch, Britain could face its own sub-prime turmoil, experts say.
James Ketchell, a spokesman for the Consumer Credit Counselling Service, said: “It takes time for these things to filter through. It will be January or February for people who might have been able to make payments getting into a downward spiral of debt.”
KPMG, the accountancy firm, has forecast that a record 130,000 people will declare themselves bankrupt or will enter individual voluntary arrangements in 2008, compared with 110,000 for the year to September this year.
The Royal Institution of Chartered Surveyors estimates that the number of home repossessions will soar by more than 50 per cent, to 45,000, next year.
It was a surge in defaults in sub-prime mortgages that sparked the credit crisis, as banks were unwilling to lend to one another because of uncertainty over other institutions’ exposure to financial vehicles backed by high-risk mortgages.
However, the British sub-prime mortgage sector, estimated at between 7 per cent and 9 per cent of the market, is smaller than that of the United States. Lenders also have not launched mortgages with low introductory rates to lure risky borrowers, which was the case in America, because of the comparative shortage of housing supply in the UK.
Knock-on effect
May 30 Kensington Group, Britain’s largest sub-prime mortgage lender, agrees to a takeover worth £283 million, or 519.5p a share, from Investec, 8 per cent below its market price before the offer. Its share price had slid from a peak of £12 in 2006
September 1 Lehman Brothers announces it is to shed up to 150 jobs at its London-based mortgage division, which includes brands such as South Pacific Mortgage Limited. The toll rises later to 225
September 10 Victoria Mortgages, a sub-prime lender, goes into administration after its funding is removed. Its collapse comes days after Kensington Group said that it was temporarily halting business
September 24 Kensington Group reduces the amount it lends to 75 per cent of a property’s value
October 9 GMAC-RFC says it is to close High Street Home Loans, a sub-prime division, and will shed 200 jobs
December 3 The American owner of Goldfish credit cards blames the deteriorating British consumer credit environment for a $422million write-off in the value of the lender – a quarter of its value
December 28 The Times reports that Marbles, the private equity-owned card provider aimed at high-risk borrowers, is increasing its prices for taking cash by 10 percentage points to 33.9 per cent. Rates for retail transactions increased from 19.9 per cent to 26.9 per cent
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