Thursday, July 10, 2008
Barclays yesterday closed its controversial Firstplus loan subsidiary to new business and cut more than three-quarters of the company's staff after a 40% slump in demand for its top-up mortgages this year.
Firstplus, best known for its advertising featuring TV celebrity Carol Vorderman, will stop making new loans from early next month "due to slowing demand", the bank said.
The freeze on new business would leave its 128,000 existing borrowers unaffected, but about 300 jobs will go from a staff of 430. About 130 people, who also process loans for the Fair & Square brand, Barclayloan and Barclaycard, would be retained in Cardiff to look after existing customers.
In recent years the business has generated hundreds of millions of pounds in profits for Barclays. The lender targeted homeowners who were unable to raise further finance from their existing mortgage lender. The loans were secured against the property and could trigger a default and repossession if the customer failed to maintain repayments.
Anti-poverty campaigners argued that Firstplus, which is the largest secured loan lender with £4.7bn in outstanding loans, encouraged vulnerable homeowners to over-extend their borrowings, pushing them towards the breadline.
Vorderman was accused of exploiting her reputation as a maths expert in adverts for the business that appeared on daytime television and in the classified advertising sections of tabloid newspapers. Two years ago the website moneysavingexpert.com launched a campaign to persuade her to step down, but she refused. It claimed the lender made much of its profits from the sale of insurance to protect loans. A clampdown on the sale of payment protection policies by the main City regulator last year was cited by analysts as another reason for a likely downturn in profits.
Barclays has consistently maintained that the subsidiary, which it acquired through the purchase of Woolwich in 2000, was a responsible lender and defaults matched the industry average.
Analysts said it was likely that there was still demand for second mortgages, but that potential customers were likely to have poor credit histories. They also said it was likely the costs of raising loans had become prohibitively expensive for Firstplus as it had for most lenders.
Firstplus said the drop in business was the result of customer fears that falling house prices would leave them in negative equity after taking out a second mortgage.
Moneysupermarket, the financial website, said the loss of Firstplus would hit its business this year and cut profits. The popularity of the loans on its comparison site generated significant profits. Shares in the company plunged by 32% after it said it would need to take steps to mitigate the impact of the closure and it expected revenues to drop by £7m.
Rival comparison website uSwitch said the demise of Firstplus was "a huge blow to the personal loans market and another signal that the consumer credit market is quickly drying up".
A spokeswoman said the departure will leave just seven players in the market, down from 18 last year before the credit crunch hit.
Neil Radley, managing director of Firstplus said: "In the past year we have tried a whole range of activities to develop our business but the market demand simply isn't strong enough. We recognise this is a difficult time for our people and will be providing all those affected with support and assistance."
Source: http://www.guardian.co.uk/business/2008/jul/09/barclaysbusiness.creditcrunch
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