Wonga Chair Damelin To Quit As FCA Takes Over
The co-founder of Wonga, the payday lender, is to step down as its chairman just months after handing over the reins as its chief executive.
Sky News has learnt that Errol Damelin is expected to leave Wonga later this year, although he could be persuaded to remain as a non-executive director pending the outcome of discussions with board colleagues.
Egon Zehnder International, the executive search firm, has been handed the task of identifying the new chairman, sources said on Saturday.
News of Mr Damelin's departure comes just days before responsibility for regulating short-term lenders such as Wonga passes from the Office of Fair Trading to the Financial Conduct Authority (FCA).
The co-founder's exit will be a significant moment in Wonga's history as it battles to persuade a hostile group of stakeholders that its business model is justified.
Mr Damelin, who orchestrated Wonga's sponsorships of Newcastle United and Blackpool, owns shares that would be worth hundreds of millions of pounds in the event of a sale or flotation of the company.
He is said by people close to Wonga to have been planning to step back for some time as the company makes the transition from being a data and technology-led company to a fully-regulated financial institution.
Jonty Hurwitz, the company's other co-founder, left its board last year, and also remains a major shareholder.
There are understood to have been tensions between Mr Damelin and other directors of Wonga, notably in relation to the company's future ownership.
Last autumn, Sky News revealed that Silver Lake Partners, one of the giants of the US technology investment sector, had made an approach to Wonga's management and shareholders about a takeover of the company.
Wonga is understood to have rejected the approach on the basis that it significantly undervalued the UK-based group, which has recorded rapid profit growth since it was set up six years ago.
Silver Lake is said to have been mulling a joint bid with Andreessen Horowitz, the early-stage investor in firms such as Facebook and Groupon that is regarded as one of the pioneers of Silicon Valley's investment industry.
The decision not to pursue the offer is said to have sparked disagreement among some directors and investors.
Wonga last year reported a further surge in annual net profit to £62.5m, buoyed by growth at its UK and international operations, underlining its status as one of the UK's most successful technology start-ups.
Its robust financial performance has, though, complicated Wonga's expansion drive.
Referring to the Church of England's desire to participate in the growing credit union movement, Dr Justin Welby, the Archbishop of Canterbury, said he had told Mr Damelin that he wanted to "compete [the company] out of existence".
The remarks sparked acute embarrassment for the Archbishop, however, when it emerged that the Church of England's pension fund was among the investors in one of Wonga's financial backers.
Wonga has sought to counter many of the criticisms levelled at payday lenders by pointing out that it only makes short-term loans to consumers and highlighting the fact that it only lends money to consumers who have been subjected to credit-checks. Customers can also repay loans early with no additional charge.
Last year, the payday lending sector was referred to the Competition Commission amid political anger about the activities of some short-term lenders.
Next Tuesday, the industry will come under the remit of the FCA, which will have powers to ban advertising and impose a cap on interest rates charged by lenders.
In remarks published on its website last summer, Wonga said:
"Since 2007 Wonga has responsibly lent over £2bn and we now have over a million customers.
"We've done that despite declining three quarters of all first loan applications and ensuring a principal default rate (money lent that we don't get back) of around 7%. This is comparable to other forms of short-term credit, such as credit cards.
"We work hard to lend only to the people who can pay us back, and our mainstream services for individuals and businesses are now available across three continents."
The record profits have fuelled speculation that Wonga's management and shareholders will look to float the company on New York's Nasdaq technology stock exchange, although such a move is unlikely in the near term.
The task of finding a new chairman will also not be easy given the political headwinds facing the industry.
Mr Damelin was replaced as chief executive last year by Niall Wass, formerly the chief operating officer.
Wonga declined to comment.