* CEO resigns after second profit warning in two months
* Says losses at home credit arm could reach 120 mln stg
* Shares slide by as much as 75 pct
* Withdraws interim dividend, says full-year payout unlikely
* Vanquis Bank under investigation by FCA (Adds detail, company and analyst comment, updates share price)
Aug 22 (Reuters) - Provident Financial had almost 2 billion pounds ($2.56 billion) wiped off its value after its second profit warning in quick succession prompted the departure of CEO Peter Crook and suspension of its dividend.
The British sub-prime lender's earnings have been hit by unresolved problems at its door-to-door lending business, with the group's woes compounded by its additional disclosure on Tuesday that it has halted sales of one of its products pending an investigation by Britain's financial watchdog.
Shares in Provident tumbled by as much as 75 percent on Tuesday, making it the biggest loser on Europe's Stoxx index. By 1316 GMT the shares were down 66 percent at 585 pence.
Provident first warned about problems at its door-to-door lending operation in late June, but said on Tuesday that the situation had deteriorated and the business is now set to lose between 80 million and 120 million pounds this year.
Founded in 1880, Provident has been trying to reorganise a door-to-door lending business that has traditionally relied on an army of self-employed agents offering high-interest loans of about 100-1,000 pounds and collecting repayment through weekly visits. However, it has been unable to recruit enough people for its plan to replace the 5,000 or so external agents with 2,500 direct employees.
The number of exisiting agents applying for the new roles fell short of expectations. "We didn't get it right," Crook said in June, citing inadequate staff-retention incentives among the factors.
That has resulted in lower sales and a debt-collection backlog, scuppering hopes that Provident, which provided loans through the Wall Street crash of 1929 and both World Wars, would benefit from a growing consumer base as real wages came under threat from Britain's exit from the European Union.
'POORLY EXECUTED TRANSITION'
"Reversing everything is not currently being contemplated," Finance Director Andrew Fisher told analysts. "It's about recovering from a very poorly executed transition, that's what we are focused on."
Crook, who had been CEO of Provident for more than 10 years, had decided to step down with immediate effect, the company said. Crook did not respond immediately to a request for comment via LinkedIn.
Manjit Wolstenholme, who Provident appointed as executive chairman on Tuesday, said her priority is a group turnaround and protection of its franchises, dismissing suggestions that the home credit arm could be sold.
The division's rate of collection of outstanding debt has dropped to 57 percent from 90 percent in 2016, with weekly sales down by about 9 million pounds.
Fisher said that there was no indication of any underlying credit quality issues as of June 30.
Analysts said that competitors would be interested in some parts of Provident's business, though there was no consensus on the value of the home credit operation.
"If you're a potential acquirer, would you look at a business that's losing 100 million pounds each year and doesn't have a proven model?" said Peel Hunt analyst Stuart Duncan.
The slump in Provident's share price proved lucrative for some hedge funds, which had been building short positions in recent days. The biggest shorts were held by AQR Capital, Lansdowne Partners and Systematica, filings showed.
Lansdowne Partners made about $32 million from its investment in Provident between Monday's close and 0900 GMT on Tuesday, during which time the price slumped to 745 pence from 1745 pence. Lansdowne declined to comment
Provident's two biggest shareholders are Invesco Asset Management and Woodford Investment Management, which between them own about 40 percent of the group. Invesco declined to comment and Woodford did not respond immediately to a request for comment.
Against the backdrop of broader public and political criticism of the high-interest lending sector in general, Provident must also contend with lost income resulting from the Financial Conduct Authority (FCA) investigation disclosed on Tuesday.
The FCA is looking at the Repayment Option Plan (ROP) offered by Provident's Vanquis Bank. The ROP allows customers, for example, to take a break from monthly debt repayments, but the service comes with a fee.
ROP contributes 70 million pounds to Provident's annual gross revenue before impairments and costs.
The company said it had agreed with the FCA to suspend all new sales of ROP last year and to contact existing costumers.
Vanquis Bank also agreed with the Prudential Regulation Authority, pending the outcome of the FCA investigation, not to pay dividends to its parent company or conduct some transactions without regulatory consent.
Provident said it would withdraw the interim dividend it announced in July and that it is unlikely to pay a full-year dividend, which Fisher estimated would save 200 million pounds.
This, coupled with normal banking headroom, meant the business should have adequate funds to ride out the turnaround, he said.
Analysts were less bullish.
"The shares are not investable until greater clarity is received, which may not be until next year at the earliest," RBC analysts wrote. ($1 = 0.7798 pounds)
(Reporting by Noor Zainab Hussain in Bengaluru; Additional reporting by Esha Vaish, Maiya Keidan and Carolyn Cohn; Editing by Rachel Armstrong and David Goodman)