Paragon warns profits to take £10 million hit

Paragon’s profits will be further eroded by a £10 million bill from staff redundancies, costs from February’s rights issue and poorly performing hedging instruments. 

The beleaguered buy-to-let specialist lender said in a trading statement it expected to have lost 30% of its workforce by the end of the financial year. 

Paragon restructured its finances at the end of February and used a £287 million rights issue to pay off a £280 million  working capital loan before the company closed its lending warehouse to new business. 

Now almost all of the remaining loan portfolio is funded through securitisation, meaning funds for new lending are restricted. Paragon reports new advances have fallen by 50% compared to the first half of 2007. 

Paragon said it had lost around 200 staff through ‘natural wastage’ and layoffs in November and March. The reduced workforce of 550 will not face further cuts, Paragon claimed.

Shares in Paragon shed 6p to 89p in early trading before adding a penny to 96p in early afternoon.

Paragon believes it can see the light at the end of the tunnel, with good cash flow from its loan portfolio with a low level of arrears. The long-term prospects for the rented sector remain strong even in a housing market downturn, it said.   

‘Paragon is in a stable position from the funding perspective,’ said Nicholas Keen, Paragon’s finance director. ‘We haven’t had as much credit for new loans as we would have liked but our existing mortgage book is fully funded.’

Keen said Paragon was still open for business and while the buy-to-let side was depressed, it was looking to expand its consumer side, which has funding until mid 2009, by offering second mortgages.

Paragon will its issue interim results on 20 May.