The FSA has banned and fined former Welcome Financial Services managing director John Blake £100,000 for providing false and misleading statements about the quality of the sub-prime lender’s loan book.
Between August 2007 and February 2009, Blake was the managing director at Welcome, a subsidiary of sub-prime lender Cattles. Welcome provided low value secured, unsecured and hire purchase loans to sub-prime borrowers at high levels of interest.
Welcome’s 2007 annual report stated around £2.1bn of the company’s £3bn loan book was not in arrears, based on accounts 120 days in arrears, and announced a £130m pre-tax profit.
The same information was then published in a Cattles rights issue prospectus in April 2008, which raised £200m.
But Welcome ran a system of calculating arrears which allowed for missed payments to be deferred, which meant days in arrears would be re-started or paused.
The true position was that £1.5bn of the book was in arrears, compared to the £900m stated. On this basis, Welcome posted a £94.9m pre-tax loss.
The FSA says if Cattles shareholders were aware of the true extent of arrears, they would have been significantly less likely to subscribe to the rights issue.
In March the FSA banned and fined Cattles finance director James Corr £400,000 and banned and fined Welcome finance director Peter Miller £200,000 for their roles in publishing misleading information.
Chartwell Funding managing director Robert Winfield says: “The company was effectively ‘self-certing’ its financial position. The fine should have been a lot higher.”