20th February 2012
In a statement, the group said the suspension "follows communications from the Financial Services Authority (FSA) over the weekend concerning its investigation into certain issues surrounding the sale of the Group's Card Protection and Identity Protection products in the UK. The FSA has requested CPP to undertake a review of certain past business sales and to make certain changes to its renewals process. The request comes as a result of the FSA's findings into CPP's sales practices."
CPP warned investors: "Whilst CPP has acknowledged to the FSA that a past business review is appropriate, the Board of CPP has informed the FSA that its requirements are disproportionate and threaten the viability of the business."
The company had been under severe media criticism for some time for sales methods used by banks and credit card companies promoting its range of card protection schemes, which offered to arrange replacements for stolen or lost cards, and for identity theft schemes, labelled as a waste of money by critics.
Investors should have noted two classic warning signs.
When the company floated in 2010, founder Hamish Ogston, the serial entrepreneur who started the credit card protection business with £1,000 three decades ago, took around £120m. There is nothing unusual in this but although he remained a majority shareholder, director sales and purchases are often indicative as they are, after all, closest to the action.
And CPP was continually criticised in the personal financial media. Few products withstand consistent long term attacks – witness structured investments, endowment mortgages and payment protection insurance.
It was called one of the ten most useless financial products in Which?. This magazine also gave five reasons why identity theft insurance is rarely worth buying. It said: "Providers of identity theft insurance are making massive profits – but the service they provide probably isn't worth paying for". These attacks were picked up elsewhere.
Generous profit margins
The group had been highly profitable. In the six months to June 2011 – the latest figures – it made pre-tax profits of £23.1m on sales of £172.1m whilst the full year to December 2010 saw underlying profits of £46.7m on revenues of £325.8m – a near 15% profit margin.
But the profitability on the policies was higher. The banks and other card companies sold the plans, often – controversially – during a " call to confirm" discussion where card providers would phone customers to check the safe arrival of their plastic, also mentioning that a CPP plan would offer protection if they lost their new card. Barclaycard stopped selling in this way last March, causing a huge share price slide.
Many of these "partners" would simply collect an undisclosed amount to the consumer commission for sales; others would have also had confidential profit-sharing arrangements with CPP on similar lines to those applying to Payment Protection Insurance – where the firm marketing the policies would divide what was left of the premium income from its own sales with the insurer after expenses and costs of meeting claims.
Uncertainty over future share trading
The freezing of share dealing is for at least two weeks and almost certainly longer, according to The Guardian, the company said "the shares would remain suspended until it worked out the financial impact of the FSA's requirements – this could take "some time". This follows a temporary suspension last week when Barclaycard announced it was no longer renewing its contract – it said last March it would cease the "call to confirm" sales pattern following FSA concern.
When the suspension is lifted, the shares are likely to trade substantially lower than the last marked price.
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