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Goeasy Plunges on Massive Loan Losses
11 Mar
Summary
- Goeasy recorded C$331 million in net charge-offs for Q4.
- Stocks plunged 60%, hitting their lowest level since 1993.
- A six-point plan aims to stabilize the business.
Goeasy Ltd. experienced a dramatic market downturn, with its shares plunging as much as 60% and its bonds declining significantly. This financial shock stemmed from substantial loan losses, totaling approximately C$331 million in net charge-offs for the fourth quarter. The majority of these write-downs, C$233 million, are tied to the company's LendCare unit, which handles automotive and powersports financing.
The company cited weaker-than-expected recoveries on delinquent accounts as the reason for these significant write-offs. These issues are not isolated, reflecting broader strains within the auto lending industry. Goeasy is temporarily out of compliance with leverage covenants related to its bank funding facilities, though it is negotiating with lenders.
In response to the crisis, Goeasy unveiled a comprehensive six-point action plan. This strategy involves shifting focus towards its Easyfinancial direct-to-consumer platform, which offers unsecured and home-equity loans. The company will also significantly curtail automotive and powersports lending via LendCare's merchant channels.
Further restructuring includes integrating the Easyfinancial and LendCare platforms and implementing cost-cutting measures aimed at reducing annual expenses by C$30 million. This operational reset occurs amidst leadership changes, with a new CEO appointed in December and a permanent CFO confirmed. The company also plans to revise past financial disclosures due to premature revenue recognition issues identified with LendCare payments.
