r00lish67
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Post by r00lish67 on May 8, 2019 13:46:19 GMT
I agree with most of what you've written, but not the conclusion. I don't see why losses would necessarily be worse at RS and LW than Zopa. I think that a credit event would cause severe liquidity issues for RS and LW, but don't see why they would suffer bigger losses. My personal feeling is that the compulsory insurance at LW would result in them holding up rather better than the other two; hence, I'm withdrawing from Z and RS but remaining in LW. Rightly or wrongly I believe that RS / LW will manipulate estimates to demonstrate that theior PFs are solvent long after it is extremely unlikely that they are. As a result the actual haircut required to truly make them solvent once acknowledged will be large. Assuming that the impact is to largely curtail any new lending, the total deficit will need to be paid on the loans outstanding at te date that the credit event is triggered. This will need to cover a liquidity buffer for the maximum difference between inflows and outflows (or take a further hircut from a forced sale of future income).
At Zopa much of the costs of previous bad credit decisions will have already occurred and so the impact of a sudden worsening will be much less (no restatement to reality required). In addition Zopa lenders are used to bad debts and so are likely to respond more understandingly to increased defaults. i believe LW & RS lenders will run to the hills when any significant formal haircut (ie more than the margin widening currently being implemented) occurs. If LW or RS do stop lending new money, I think it is likely that administrators are likely to be involved. They are likely to be ultra cautious and so impose a larger haircut than the company themselves would have done. I believe that a reduced Zopa will survive all but the most catastrophic scenarios, not so RS & LW.
Will be overall impact on overall returns be lower at Zopa? Possibly not (although it will by the increased costs of the curtailment), although I think the transparency will have made Zopa more realistic that RS/LW on default predictions and therefore lead to earlier tightening of credit (not to mention some institutional memory of 2008). Re insurance, a nice to have, but without some indication of terms / experience of payouts, I do not assume that this will help materially.
JMHO
- PM
Pretty much totally agree with this. The problem for RS/LW investors is that, in setting their own performance parameters, the platforms incentives aren't aligned to investors. The platforms want to make things look as good as possible. When their PF's/loanbook performance appears strong, lenders are willing to lend at a lower rate and the platform's profit margins increase. If the loanbook looks like it's bombing, that will discourage investors and exacerbate the platform issues by requiring a higher lender rate of return thus diminishing their margins even further. So if you're on the 'executive lending committee' or whatever it is, what are you going to do - Fluff up the figures in whatever way possible to hopefully ride it out whilst keeping margins high and investor supply going? Or show a picture of a significantly deteriorating forecast to make investors run for the hills? This is why investors IMV need to be acutely aware of the current actual audited content of cash in provision funds, and consider platform estimates of future inflows/outflows with a great deal of caution. edit: Also, propman is right re: Zopa. I've said before, somewhere, Zopa/LW/RS probably haven't in reality performed that differently over the last few years. The difference is that Zopa have let the gas out of their investors balloons gradually as poor performance has crept in (see steady trickle of complaints on their threads). LW/RS have kept investor returns sailing into the sky, but those balloons are currently looking a tad over-inflated and might just pop if things don't change..
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Post by gravitykillz on May 8, 2019 14:19:04 GMT
Everyone who is looking for higher returns has to accept a degree of risk.
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Post by df on May 9, 2019 10:54:50 GMT
Everyone who is looking for higher returns has to accept a degree of risk. Generally speaking - Yes. But the rates don't always represent the level of risk. For example, Zopa's circa 5% without PF is much riskier investment than LW's 6.5% (imo).
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Post by gravitykillz on May 9, 2019 14:10:51 GMT
Everyone who is looking for higher returns has to accept a degree of risk. Generally speaking - Yes. But the rates don't always represent the level of risk. For example, Zopa's circa 5% without PF is much riskier investment than LW's 6.5% (imo). So why invest with zopa ?
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Post by df on May 9, 2019 15:46:18 GMT
Generally speaking - Yes. But the rates don't always represent the level of risk. For example, Zopa's circa 5% without PF is much riskier investment than LW's 6.5% (imo). So why invest with zopa ? I've no idea. I've stopped as soon as they scrapped PF. Still have my two old accounts - just collecting returns and withdrawing weekly. New Zopa products don't make sense to me.
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Post by propman on May 9, 2019 15:49:52 GMT
Without the recent loanbook it is difficult to compare the risk on the different platforms. However the significantly lower APRs available on Zopa must mean that they have more lower risk borrowers. Of course it is by no means certain that the very low rates paid by these borrowers compensate for the remaining risk better than the higher rates on higher risk lenders available elsewhere.
Personally I am cautious of RS as they have significantly increased their property lending. This is poor diversification for me as I am in the property industry so will be impacted by downturns in the property market. It does make me worry that the impact of a downturn is likely to be felt much harder at RS as the property market is very cyclical and real losses are widely experienced during each property recession. As said before I believe that the "security" provided on secured property loans is an alternative to the security of personal liability on "unsecured" personal loans. Yes loss of most of the money in a single loan is very unlikely, but a loss on a high proportion of these loans in a recession is likely in property and extremely unlikely in personal loans. RS seem to be lending increasing amounts. I hope that they are contributing significantly to the PF and that contributions are not being influenced by the low rate of defaults during the benign market faced by RS since it started lending. LW website suggests that all loans are to individuals although they don't make it clear that no property / commercial loans are made.
- PM
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Greenwood2
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Post by Greenwood2 on May 9, 2019 16:07:58 GMT
Without the recent loanbook it is difficult to compare the risk on the different platforms. However the significantly lower APRs available on Zopa must mean that they have more lower risk borrowers. Of course it is by no means certain that the very low rates paid by these borrowers compensate for the remaining risk better than the higher rates on higher risk lenders available elsewhere.
Personally I am cautious of RS as they have significantly increased their property lending. This is poor diversification for me as I am in the property industry so will be impacted by downturns in the property market. It does make me worry that the impact of a downturn is likely to be felt much harder at RS as the property market is very cyclical and real losses are widely experienced during each property recession. As said before I believe that the "security" provided on secured property loans is an alternative to the security of personal liability on "unsecured" personal loans. Yes loss of most of the money in a single loan is very unlikely, but a loss on a high proportion of these loans in a recession is likely in property and extremely unlikely in personal loans. RS seem to be lending increasing amounts. I hope that they are contributing significantly to the PF and that contributions are not being influenced by the low rate of defaults during the benign market faced by RS since it started lending. LW website suggests that all loans are to individuals although they don't make it clear that no property / commercial loans are made.
- PM I tend to think that if Zopa are having trouble keeping their rates up to target with current default levels, it's likely that similar platforms with PFs are probably building up a similar problem but currently obscured by the PFs.
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johni
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Post by johni on May 11, 2019 17:13:33 GMT
Zopa still appears to have rising defaults on plus. The lack of protection fund means this isn't a problem for Zopa as the individual bears all the risk. At Ratesetter and Lending Works they have to manage the defaults either by increasing money taken from loans or directly adding to protection fund. Both visibly display amount in fund where Zopa just keeps hitting lenders with defaults.
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Greenwood2
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Post by Greenwood2 on May 11, 2019 17:39:51 GMT
Zopa still appears to have rising defaults on plus. The lack of protection fund means this isn't a problem for Zopa as the individual bears all the risk. At Ratesetter and Lending Works they have to manage the defaults either by increasing money taken from loans or directly adding to protection fund. Both visibly display amount in fund where Zopa just keeps hitting lenders with defaults. You could turn that on its head and say Zopa have a strong vested interest in trying keep defaults to a minimum because they are very obvious to lenders (unlike RS and LW). Unless Zopa have a death wish.
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johni
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Post by johni on May 11, 2019 19:52:27 GMT
Looking at the Zopa thread they appear to have a death wish. Plus seems to still be gaining major loses for investors.
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Greenwood2
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Post by Greenwood2 on May 11, 2019 19:59:43 GMT
Looking at the Zopa thread they appear to have a death wish. Plus seems to still be gaining major loses for investors. No doubt rates are not up to target. Have you lost money on Zopa?
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johni
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Post by johni on May 12, 2019 9:05:05 GMT
I don't believe anyone has lost money unless they invested and withdrew within a year. But if Zopa is advertising rates which are not being met, there is no protection fund and the rates are already low then Zopa is failing in its stated aim. Plus defaults are still rising they have cut rates this is a failure of their credit checks. Other platforms have to heed the signs. Ratesetter obviously haven't they have changed their target rate for the protection fund admitting they have failed to address the losses. Their problem will be compounded further with a property default which only brings in a 60% recovery of capital then the protection fund will be wiped out with no time to recover. Lending works must not lower the credit check standards and ensure the protection fund is topped up now before major loses occur. Ratesetter have failed to take action allowing the fund to continually drop now down to 112% yet the target before admitting defeat was a minimum of 125%.
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Post by gravitykillz on May 12, 2019 16:06:39 GMT
Looking at the Zopa thread they appear to have a death wish. Plus seems to still be gaining major loses for investors. I agree zopa users need to vote with their feet and move to a better p2p lender. Maybe if enough ppl did zopa would change. But as it stands zopa is not a place where I would put my money.
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Post by df on May 12, 2019 16:24:29 GMT
Looking at the Zopa thread they appear to have a death wish. Plus seems to still be gaining major loses for investors. I agree zopa users need to vote with their feet and move to a better p2p lender. Maybe if enough ppl did zopa would change. But as it stands zopa is not a place where I would put my money. Well, according to Zopa's weekly update e-mail there is actually a few days queue to lend. I've no idea how they manage to attract lenders these days when there are so much better alternatives. They are changing (becoming a bank). It's been going for a while, but now there was a hint in e-mail that they will be offering bonds (presumably with FSCS).
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Greenwood2
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Post by Greenwood2 on May 12, 2019 20:05:38 GMT
I agree zopa users need to vote with their feet and move to a better p2p lender. Maybe if enough ppl did zopa would change. But as it stands zopa is not a place where I would put my money. Well, according to Zopa's weekly update e-mail there is actually a few days queue to lend. I've no idea how they manage to attract lenders these days when there are so much better alternatives. They are changing (becoming a bank). It's been going for a while, but now there was a hint in e-mail that they will be offering bonds (presumably with FSCS). I do wonder if the better alternatives will still be better alternatives in a few years time.
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