Bankruptcy rule change threat to Egg profits
13 February 2004 | 4193 views | 0
A proposed change to UK bankruptcy laws poses a serious threat to future profits at UK online bank Egg warns City analyst Mark Thomas of Fox-Pitt Kelton.
Egg, which has built its UK business on unsecured credit card lending and personal loans, is the bank most exposed to a change in the rules that would allow UK bankrupts to discharge their personal liabilities after only a year, says Thomas.
Egg disputes the analysis, pointing out that its borrowers are upmarket and make their repayments by direct debit, which provides an early warning of potential problems.
The new laws have been criticised by mono-line credit card operator MBNA, which is in the running to acquire Prudential's 79% stake in Egg.
Extending the analysis across the sector, Thomas suggests that both Barclays and Royal Bank of Scotland would also be badly hit if bankruptcy rates rise as expected under the new system.