Vanquis Banking Group PLC on Monday warned income and pretax profit in 2024 would be substantially below market expectations as it deals with a flood of claims over motor finance deals.

The Bradford, England-based lender also intends to slash the dividend.

Shares in Vanquis Banking Group plunged 34% to 82.53 pence each in London on Monday morning.

Vanquis said that while it is not part of Financial Conduct Authority investigations in motor financing, it has seen ‘significant levels of third-party complaint submissions’.

It cautioned that even though the ‘vast majority’ of complaints are not upheld, rising costs of reviewing them will ‘materially’ impact profits.

In January, the UK financial services watchdog said it was probing whether compensation could be due for people who were potentially overcharged for car loans.

If it finds misconduct, those affected will be compensated.

Vanquis said it was exploring proactive legal steps to address this situation.

Vanquis also warned that income in 2024 is expected to be ‘materially’ lower than the £583.3 million expected by analysts, as it redevelops its products and pricing.

The company hopes these changes will lead to a return to modest lending growth from the start of the second quarter.

Taking into account the above two factors, Vanquis said adjusted pretax profit for 2024 will be ‘substantially lower’ than market consensus, resulting in a low single digit adjusted return on total equity.

A company compiled consensus forecast 2024 adjusted pretax profit of £75.1 million.

In 2025, adjusted ROTE is expected to remain in the low single digits, as it continues its ‘repositioning and transformation’, Vanquis said.

Vanquis said it intends to pay a final dividend in 2023 of 1p per share and a total dividend in 2024 of ‘up to’ 1p per share, with ‘measured progression’ in 2025.

‘From 2026, following full implementation of the new strategy, the board will revisit the capital allocation policy and reset the level of dividend from which to maintain a progressive policy thereafter,’ Vanquis said.

In 2022, Vanquis paid a final dividend of 10.3p per share, making a total payout of 15.3p.

Vanquis said it remains on track to deliver the benefits of its previously announced cost saving commitments.

It expects to report 2023 adjusted pretax profit of £25 million, in line with previous guidance.

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