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Post by diversifier on May 6, 2020 11:34:04 GMT
I guess the fact that they are out trying to raise private capital is what originally set off the alarm bells, that's the news event in the last couple of months that changed things for me. They could go the same way like Funding Circle, basically closed to new lending from all retail investors, but you can't just divide costs by four, because you need to build up the whole recoveries side of the business too. Again, from FC experience, this is what has really killed off retail investor interest, the default experience and the terrible recoveries performance (I have had £53k of loans default with a grand total of £3k recovered in 2 years). In FCs case they simply decided to stop marketing to retail investors and focus on just originating loans to sell in securitisations to junk debt funds, I suppose RS could go the same way. It’s true that RS could pivot their business model even more substantially, which would change the outlook. My first reaction to what you said was: well, wouldn’t that be a good thing to add a new set of buyers for the loans. Wouldn’t it be cheaper for RS to “acquire loans for securitisation” just by buying them off willing sellers rather than the cost of marketing to acquire new loans. But obviously your experience with FC has been negative, so could you tell what has happened there (which I don’t know)? Were existing retail investors prevented from selling to the wholesale securitised funds in secondary market? Or was the problem that retail investors can’t sell defaulted loans, and FC no longer had any great interest in recovering those defaults because it had a new customer base?
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Post by shanghaiscouse on May 6, 2020 12:11:14 GMT
It seems to be the latter. I think because on FC all loans are unsecured, so it is a particularly unrewarding business to try to get recoveries. What can the bailiffs do, they cannot seize assets, its basically a desktop process to pursue guarantors (the directors of the borrowers) that seems to have no end. So FC seems to have outsourced all this work to agencies. But the real problem with FC is that to boost their IPO they went on a lending spree in 2018 which created a flood of bad debt. The share price collapsed to less than a quarter of IPO price, and the public market well is now poisoned for all P2Ps.
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Stonk
Stonking
Posts: 735
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Post by Stonk on May 6, 2020 12:12:58 GMT
No. My "crystal balls" -- or "eyes" as I prefer to call them -- are presently embedded in my head, from which location they enable me to see and read about things that have happened, are happening now, and show little sign of stopping happening.
I bow to your absolute certainty in your superior knowledge of future events
I do not have knowledge of future events, but I seem to be able to do one of the fundamental things I thought humans werre supposed to be good at: spotting patterns and drawing conclusions.
Do I need to give a list of the companies that have already gone into administration, or entire industries that are on the brink of failure without massive restructuring and mind-boggling amounts of state help? Do you not see the huge layoffs that are happening? The 2 million new applications for Universal Credit? Maybe this situation has not affected you -- a lender -- very much, but I assure you it is having quite an effect on a lot of other people -- the kind of people who tend to be your borrowers.
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Post by diversifier on May 6, 2020 13:36:18 GMT
It seems to be the latter. I think because on FC all loans are unsecured, so it is a particularly unrewarding business to try to get recoveries. What can the bailiffs do, they cannot seize assets, its basically a desktop process to pursue guarantors (the directors of the borrowers) that seems to have no end. So FC seems to have outsourced all this work to agencies. But the real problem with FC is that to boost their IPO they went on a lending spree in 2018 which created a flood of bad debt. The share price collapsed to less than a quarter of IPO price, and the public market well is now poisoned for all P2Ps. Ok, thank you for the perspective. So the cautionary tale is to pay attention to the underlying *total* default rate, even where that is being successfully covered by the PF, not just the rate relative to target. Because the recovery rate on that might reduce if the model changes. I guess we can track that by looking in RS’s key figures at the monthly change of “total repayments made by PF”, divided by “total amount under management”. Last month that was £5.5m, which translates to 7.5% annualised, against an all-time average of 6.6%. That figure must still be net of recoveries, but it gives an order of magnitude of what could be at risk if the recovery rate falls.
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Post by shanghaiscouse on May 6, 2020 13:46:05 GMT
Yes, good point. FC has some interesting data that I bet it wishes it never started publishing, it is defaults by loan annual cohort www.fundingcircle.com/uk/statistics/ if you go to bottom, there are 3 chouces lending, returns and businesses, look in returns and find the Lifetime Default Rate chart. It shows that when they were a non-discretionary platform where lenders chose which loans to participate in, then bad debts were kept similar year on year. Once they started preparing for IPO in 2016, became discretionary (i.e. they chose eveyrthing) then ramped up the "growth" then it just gets worse and worse year after year.
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Post by lingield on May 6, 2020 15:39:45 GMT
Ratesetter is not FC. Different models, for example, Ratesetter relies on retail investors whereas FC always had a mix of retail and institutional money.
I think that we are very lucky that Ratesetter needs to raise funding itself. Ratesetter's investors will not back them if they know or are certain that Ratesetter's business will fail. That puts the Ratesetter team and Ratesetter's shareholders under immense pressure to make this work (personally, senior management will have life changing sums of money at stake). I do not agree that Ratesetter can cut the existing lender's adrift, this is their only business and if they upset lenders then they have no business! So as a general view, I think this will be fine but this is subject to the caveat that if the loan portfolio performs so badly that Ratesetter's business might not be salvageable. As yet, we have not seen any evidence to indicate that this is likely to be the case. As someone noted, we are at Defcon 3 not Defcon 1.
I think this is going to be difficult but there is no evidence at the moment, that this is likely to collapse. If anything, an interest rate reduction of 50% should be seen as a significant vote of confidence. It could easily have been taken down by 75 or 100%, and that might happen yet! You cannot blame Ratesetter for the pandemic. It will however put their model under the microscope and if it is shown not to work (I am not sure what the test is here, but a 50% hair cut in interest should still be considered to be acceptable) then there might be an issue, but so far I have not seen any evidence that it is not working.
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Post by shanghaiscouse on May 6, 2020 19:47:42 GMT
Ratesetters investors won't back them if there is no prospect of making a big multiple. FC have trashed the public markets for all P2Ps so now there is no big payday on the horizon, just a long slog of trying to eke out a profit. They generated £3m cash on operations last year (first time positive) but obviously this year the positive is likely to go negative. Not sure how attractive they are to anyone tbh.
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Post by lingield on May 6, 2020 20:47:54 GMT
If they can keep the lenders whole, Ratesetter's equity still has significant value which is worth protecting. Even if it not remotely close to the FC IPO at the moment, it is not at the level you would expect it to be written off. I am also sure that for number of Ratesetter personnel, the sums are likely to remain meaningful. The point I was making is that there is an alignment of interests and Ratesetter cannot simply hang the lenders out to dry. The lenders may suffer at the hands of the economy but it is in Ratesetter's own interests to protect the interests of the lenders to the extent that Ratesetter (and their investors (be they new or old)) are able to do so. If Ratesetter becomes insolvent, there would be an investor who would be prepared to step in (and add credit support) if the loan book looks like it might hold up.
We do appear to be at the point of no return yet, and there is no reason to be unduly pessimistic. If irrecoverable loan defaults hit 15%, then we will be stuffed but we are unlikely to know this for several months given that a number of loans will enter a period of forbearance. Ratesetter's decision to drop the interest rate by 50% indicates that they do not think this is likely to happen at this stage. Ratesetter will have no hesitation in beefing up the provision fund if required as this protects their own interest.
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Post by shanghaiscouse on May 7, 2020 9:23:54 GMT
I think the only glimmer of hope is that RS have not yet started doing securitisations. Once FC started doing those, disposing of £200m blocs of loans in one go, then their interest in individual retail investors evaporated. There was no alignment of interests, we have been left to hang. In my case, £56k of bad debts and £3k of recoveries in 2 years. All the interest I was ever paid has been wiped out. Problem is I spent all that interest as it was coming in, and now I am left with a bunch of losses.
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coogaruk
Hello everyone! Anyone remember me?
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Post by coogaruk on May 7, 2020 14:38:29 GMT
Well, my money has been flying out at 10% in the 1-year market. I should be chuffed but instead I am feeling apprehensive that I may never get my capital back!
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Post by Badly Drawn Stickman on May 7, 2020 14:58:05 GMT
I asked RS if they were temporarily diverting 50% of the interest they take on each loan to the Provision Fund, I think from the answer I got we can take that as a no! Did we not know this? The duration is temporary (in theory) the amount diverted never was, that was simply waved goodbye.
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Post by Badly Drawn Stickman on May 7, 2020 15:08:46 GMT
Did we not know this? The duration is temporary (in theory) the amount diverted never was, that was simply waved goodbye. We knew the amount taken from Investors is waived goodbye. What we didn't know is if RateSetter were also diverting 50% of the income they take from each Loan to the PF. Actually it seems only one of us didn't in this instance, I knew where it was going. Edit. I think we are at cross purposes, you are talking about Ratesetters share of interest margin? Edit 2 I assume that is being used for what it always was used for.
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Post by Badly Drawn Stickman on May 7, 2020 15:29:19 GMT
Actually it seems only one of us didn't in this instance, I knew where it was going. Edit. I think we are at cross purposes, you are talking about Ratesetters share of interest margin? Exactly that. RateSetter are diverting none of their share of margin to the PF You will be wanting my additional edit above then. I can see it's a tree and get why you are barking at it, not sure there is anything in the tree that needs barking at though. That is was and always has been for operating costs and trying to make a profit, the profit bit has never really happened so suspect there is no leeway to use that resource. My understanding is the PF element is a cost to the borrower, I doubt they will be willing to pay extra.
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jcb208
Member of DD Central
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Post by jcb208 on May 7, 2020 15:37:05 GMT
I asked them if they would refund the fees charged when I released my 5 year money,then stupidly stuck it in access as I had 3 weeks before I needed it .I stated the basis that 5 year was going to be repaid faster .You can guess their answer to that one
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Post by Badly Drawn Stickman on May 7, 2020 15:57:58 GMT
You will be wanting my additional edit above then. I can see it's a tree and get why you are barking at it, not sure there is anything in the tree that needs barking at though. That is was and always has been for operating costs and trying to make a profit, the profit bit has never really happened so suspect there is no leeway to use that resource. My understanding is the PF element is a cost to the borrower, I doubt they will be willing to pay extra. I'm simply seeing that RS are short sighted when it comes to making business decisions. If they survive this I'd be surprised if they didn't lose a significant chunk of investors and therefore future profit. Sometimes spending a little money to keep your customers happy actually saves you money as a business. I'm pretty sure it's not my job to defend RS but suspect it was not a decision reached lightly and without regards to the future. However things are relative, and currently if they survive and the worst impact on me is a reduction in interest, I will be content enough.
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