UK lender hit by credit crunch

UK sub-prime loans firm Elephant today warned of lower-than-expected profits after banks spooked by the summer credit crunch took a tougher line on lending.

UK sub-prime loans firm Elephant today warned of lower-than-expected profits after banks spooked by the summer credit crunch took a tougher line on lending.

The company, which acts as a sales channel for banks looking to lend to customers with poorer credit records, said several banks had lifted requirements or pulled out of the market altogether.

In September many banks overhauled their lending products – raising interest rates – and loans took longer to complete, the firm said.

The weak first half will hit full-year profits, although Elephant said record levels of inquiries from would-be borrowers now being turned away by mainstream banks would see a “significantly improved” second half performance.

Elephant announced cost-cutting plans following today's profits warning, which caused its shares to slump by more than 40%.

The company also said it is spinning off a 51% share in its personal insolvency business DebtSmashers following tougher conditions in the market for individual voluntary arrangements (IVAs), which allow debt-laden consumers to clear agreed levels of debt without going into bankruptcy.

Under a five-year arrangement with the new company, Elephant – which retains a 49% stake – will keep up to £500,000 (€713,820) a year in commissions from loan referrals to the business.

The move comes as a recent boom in IVAs loses steam with lenders now taking a tougher line on spiralling personal debt. The sea-change in attitudes has knocked investor confidence in the sector as a host of firms have warned on profits.

More in this section

Lunchtime News Wrap

A lunchtime summary of content highlights on the Irish Examiner website. Delivered at 1pm each day.

Sign up
Revoiced
Newsletter

Our Covid-free newsletter brings together some of the best bits from irishexaminer.com, as chosen by our editor, direct to your inbox every Monday.

Sign up