A brace of better-than-expected announcements provided Provident Financial’s shareholders with a much-needed lift boost yesterday.
Markets were craving news on two separate investigations by the Financial Conduct Authority. Fines and redress totalling £190m was £100m less than many had feared.
Meanwhile, a £300m rights issue was well below the £500m reported over the weekend. A fair chunk of this will be used to pay the fines with the rest held to bolster capital buffers.
As with any rights issue, the biggest challenge for Provident’s new chief executive Malcolm Le May was to get institutional investors on board. In this instance, it was rather a binary exercise – half of the company is owned by star fund manager Neil Woodford and his previous employer Invesco. Get them signed up and it was job done.
Provident stressed yesterday that they had the support of these two retail fund darlings. What assurances did Britain’s biggest doorstep lender give them? “None,” Le May told City A.M.. “I went to see them and told them where we were. I think they saw the merits of the case and were supportive. But no assurances given.”
In the first few weeks of 2018, Woodford racked more than £1bn of losses – partly to blame was Provident’s performance, a company he has staked his reputation on. But despite this, redemptions from Woodford’s flagship Equity Income fund have been comparatively light. Around a quarter of his losses were investors pulling their money, the rest was poor performance.
What Woodford fears more than big investment losses, is a run on his funds. When clients start pulling their money in big enough quantities, fund managers’ hands are forced and they must start selling stocks. When you own around a quarter of the likes of Provident, selling big chunks of shares moves the market.
Provident’s surge yesterday alone handed Woodford a £150m gain. But he is not out of the woods yet – he has taken a big hit backing the likes of AA and Capita, among others.
Star fund managers benefit from retail investors’ comparatively sticky money. But if they lose their confidence, such money can come unstuck very quickly. The market response to Provident’s announcement is a big shot in the arm for Woodford. And he needed it.
Read more: Woodford suffers a £1bn blow