CPP hoping that FSA fine brings uncertainty to an end

CPP may been handed a further 10.5m-pound fine for mis-selling insurance products, but shares soared on Thursday as the conclusion of a long-running investigation removed a great deal of uncertainty that has been clouding over the stock for the last 20 months.

The Financial Services Authority (FSA) investigation, which started in March 2011, found that CPP had sold card protection products to customers who did not need the cover and failed to explain the limited circumstances in which they would need it. The FSA also found that CPP overstated the risks of identity theft to sell another product.

The FSA has imposed a penalty of £10.5m on CPP, which includes redress to customers and associated costs, bringing its total fine to £33.4m, £24.9m of which had already been announced. CPP admitted that the impact of these additional costs on the business in 2013 and 2014 will be "material."

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

"Deeply sorry"

CPP's Chairman Charles Gregson said that the company was "deeply sorry" for any customer detriment that may have occurred due to the incident.

The company commented: "CPP acknowledges that there were significant historic failings which occurred in the period from January 2005 to March 2011 [...] and that the FSA's investigation and identification of practices below the required standard are deeply regrettable.

"The group welcomes the opportunity to conclude its discussions with the FSA on these issues and to resolve the uncertainty that has surrounded the business regarding the duration and outcome of the investigation."

In addition to the fine, it was revealed today that RBS will unlikely renew its Mobile Phone Insurance contract with CPP from March 2013, meaning that revenues and profits for the firm from 2013 and beyond will be "significantly lower".

Going forward

As for its financial position, CPP said it is in talks with its lending banks about the debt facilities that mature next year.

Shares in CPP surged at the start of the month after the company received a preliminary approach from Affinion Group, which has until November 28th to make a firm intention of an offer.

The stock surged 20% to 29p this afternoon and now stands over 400% higher over the last month, having sunk to a 52-week low of 5.5p before takeover speculation began. Nevertheless, the the shares have still got a long way to go before they reach the 300p level before the FSA began.

The firm said: "The combination of the expected increase in FSA-associated costs, the anticipated decline of the UK business as a result of the restrictions imposed by the FSA, and lost business due to the likely decision by RBS not to renew our contract will have a substantial adverse impact on the business in 2013 and beyond.

"It is inevitable that the group will have to reduce its cost base in line with the new operating environment and it is considering the most appropriate approach to this."