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P2PFA
Nov 27, 2014 12:32:46 GMT
Post by samridlerp2pfa on Nov 27, 2014 12:32:46 GMT
Have just checked the P2PFA site and found the following:- Clicking on the Market Invoice link takes me to the Wellesley website The Lending Works link gives a 404 error "page not found". Doesn't exactly inspire confidence....... Apologies for this, there was a few issues with links on the P2PFA website which have hopefully been resolved.
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elliotn
Member of DD Central
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P2PFA
Nov 28, 2014 9:23:16 GMT
Post by elliotn on Nov 28, 2014 9:23:16 GMT
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sl75
Posts: 2,092
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Post by sl75 on Nov 28, 2014 11:04:03 GMT
On the plus side, they've now correctly converted the headline rates into comparable annual rates (unlike the previous article comparing the bonds to the P2P product). However, they've not explicitly highlighted that their risk rating (and rationale behind it) applies ONLY to the P2P product (potentially leading to some investors taking on more risk than they're comfortable with if they misunderstand this advice to apply to ALL of Wellesley's products), and some of the comments given to justify the risk rating suggest to me that either I or they have not fully understood the distribution of risk. In particular regarding the paragraph: "The directors retain 5% of every loan and they have stated that they will lose their share before you do in the event of the loan going bad, the bad-debt provision fund being overwhelmed, and sale of the security not covering the entire loan." My understanding was that Wellesley the company was retaining this 5% rather than the directors in a personal capacity... ... and in particular that the cover for the "Savings bonds" was also from this riskiest 5% of retained loans. My understanding was also that the losses for this 5% were NOT protected by the provision fund, which is in place to cover the loans matched on the P2P marketplace. In exchange for this risk (and the cost of running the business), Wellesley (the company, and thus indirectly the directors and shareholders) get to keep the spread - any difference between the borrower payments, and the total of lender payments and provision fund contributions. By my understanding, the "savings bonds" would be exposed to similar risks in the event of irrecoverable defaults in excess of retained interest, but these offer only an amount 1% above the P2P loans (so to my mind would only end up being sold to optimists [who consider the additional risk somewhat below 1%], or to those who don't understand the risks they are taking on with this product). It seems to me that the savings bonds would (indirectly) represent part of the 5% or more that is most at risk - the other up to 95% being the retail P2P loans. Given that secured loans are unlikely to have more than a small % eventual loss, this 5% of capital may be carrying something like 80% of the risk. Perhaps I misunderstood the capital structure and thus risks carried by the bonds?
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P2PFA
Nov 28, 2014 13:47:45 GMT
Post by 4thway on Nov 28, 2014 13:47:45 GMT
Hi elliotm, Neil from 4thWay here.
Thanks for the summary. You said:
"On the plus side, they've now correctly converted the headline rates into comparable annual rates (unlike the previous article comparing the bonds to the P2P product).'
Ouch, that was sloppy. Sorry.
'However, they've not explicitly highlighted that their risk rating (and rationale behind it) applies ONLY to the P2P product (potentially leading to some investors taking on more risk than they're comfortable with if they misunderstand this advice to apply to ALL of Wellesley's products), and some of the comments given to justify the risk rating suggest to me that either I or they have not fully understood the distribution of risk.'
We had assumed (badly it seems) that people knew we were all about P2P lending only on our website, but as a result of your comment we shall make this much more clear in this report and in future. Thanks.
'In particular regarding the paragraph: "The directors retain 5% of every loan and they have stated that they will lose their share before you do in the event of the loan going bad, the bad-debt provision fund being overwhelmed, and sale of the security not covering the entire loan.
'My understanding was that Wellesley the company was retaining this 5% rather than the directors in a personal capacity... '
That's not what the company told me in straight words, but I shall ask them again. Particularly in light of your understanding of the savings bonds and 5%.
"My understanding was also that the losses for this 5% were NOT protected by the provision fund, which is in place to cover the loans matched on the P2P marketplace."
That's correct; it's just retail investors' money that Wellesley protects with the bad-debt fund. The sentence is worded wrong. I'll fix it.
Please remember that we have not looked under the bonnet of the savings bonds in any detail since we rate risk of P2P products only. The brief article of ours on the website that was contrasting the two products was not a comprehensive report but more a quick, few hundred word blog that was looking at the impact of the savings bonds on those who are P2P lending only. I think the fine print for bond holders is not likely to greatly increase the risk for the P2P lenders compared to the amount borrowed in this way).
We wrote that article only in the light of the fact that, we believe, Wellesley exited the P2PFA on the basis of how the savings bond was being sold on their website alongside P2P services. Otherwise we wouldn't have brought up the bond at all. But I guess that article is one cause of confusion as to whether we risk-rate savings bonds or not.
Neil
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sl75
Posts: 2,092
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P2PFA
Nov 28, 2014 14:45:28 GMT
Post by sl75 on Nov 28, 2014 14:45:28 GMT
We had assumed (badly it seems) that people knew we were all about P2P lending only on our website, but as a result of your comment we shall make this much more clear in this report and in future. Thanks. To be honest, I knew nothing of your site before I saw elliottm's links in this thread, so didn't really have any preconceptions about what your website was about. Further, although I caveated it somewhat, I should stress that my understanding of Wellesley's capital structure was more of an "initial impression combined with jumping to conclusions" on reading the various documents on the site, rather than a result of detailed research - I'm happy to have my understanding demonstrated as wrong by someone who has done more detailed research, but had not yet seen anything that caused me to doubt this initial impression. Edit: I had a further skim through the "invitation document", and the point I'd failed to note last time is that there are two separate sister companies - "Wellesley & Co" which does the P2P stuff and retains a subordinated tranche of all the loans matched to P2P investors, and "Wellesley Finance" which initiates the loans before selling on to Wellesley & Co... as I now understand it, the bonds are issued by "Wellesley Finance", and the subordination within Welleley & Co thus seems irrelevant. The Provision Fund would also be irrelevant as it only applies to the P2P loans held via Wellesley & Co. It would appear from page 6 of the document that both Wellesley Finance and also Wellesley & Co retain a portion of each loan on their books, and only the Wellesley & Co portion is explicitly stated to be subordinated to the P2P lenders. More research is required....
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P2PFA
Nov 28, 2014 14:52:55 GMT
Post by 4thway on Nov 28, 2014 14:52:55 GMT
Erm, sorry for calling you elliotm, although he does seem to be a great guy. ("A very good article" he writes) Ha!
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sl75
Posts: 2,092
Likes: 1,245
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Post by sl75 on Nov 28, 2014 15:37:32 GMT
Erm, sorry for calling you elliotm, although he does seem to be a great guy. ("A very good article" he writes) Ha! Close - that was jamesduffin's response to elliottm - elliottm was the one who posted the links to your articles.
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P2PFA
Nov 28, 2014 20:52:20 GMT
Post by uncletone on Nov 28, 2014 20:52:20 GMT
Everybody stand down, have a large drink, count to 100, and start again? (Don't you hate communication by keyboard?)
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P2PFA
Nov 29, 2014 6:41:06 GMT
Post by 4thway on Nov 29, 2014 6:41:06 GMT
Sorry, who said that?
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