aju
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Post by aju on Dec 30, 2018 0:18:16 GMT
So I've been reading a number of reviews of the P2P market and many of the reviews seem to see the fact that Zopa has been through a recession as a positive but I'm not so sure that this is a good indicator.
One of the reasons I am not so sure is that during the previous recession Zopa was very much a fledgling operation which seemed to be very capable and had a lot of good tools in its arsenal, many of which are no longer available. One of the things I would be a little uncertain about is Zopa's checking of lenders seems to rely heavily on recently introduced AI tools. In the past I'm sure they also used tools for DD but I wonder how much of the work was also more hands on too. In 2008 their actual defaults so far was 4.20% but dropped recently to 4.13% (Not sure why that would happen when in the same breath in both cases they suggest 100% of loans were repaid to date).
Last year when Zopa admitted that the defaults would increase due to their over lending to D/E markets the actual defaults so far in 2016 were 3.19% by the 2017 figures but by Sep 2018, the most recent stats, this had increased to 4.0% an effective 25% increase in actual defaults so far! - This may not be unusual though when Zopa says default tend to occur mostly in the 6-18 month period of a loan. (That's not been my experience of late but I'm sure they have way more stats than I have!)
I notice also that the projected defaults levels for 2015, 16 and 17 have all increased as well.
I'm not wholly convinced that Zopa is as safe in a recession just because they have weathered one before but am I being just a little bit unfair on Zopa perhaps?.
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angrysaveruk
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Post by angrysaveruk on Dec 30, 2018 1:03:43 GMT
I would argue the last recession was cut short by QE. Next recession could very well be a lot deeper.
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aju
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Post by aju on Dec 30, 2018 1:39:50 GMT
I would argue the last recession was cut short by QE. Next recession could very well be a lot deeper. Oops, that's a thought they do not address either. The QE thingy though has definitely made a lot of people move into P2P perhaps without fully realising the potential pitfalls of uncontrolled defaults etc. Isn't QE only just starting to be rundown now? Many of the P2P platforms might have the requisite sign posting to potential losses of interest and worse to capital losses but I'm willing to bet not many people actually look at that stuff and make sure they understand the full implications of P2P compared to that offered by the FSCS protection in the banking field that they maybe more used to.
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macq
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Post by macq on Dec 30, 2018 9:16:03 GMT
the question may not be how safe are they but more how will the investor handle recession not only in Zopa but in others as well as like you say do they really read the disclaimers(some of the Black box accounts even look like savings products)
Its not to say they are safe but using your example of Zopa you would assume they have used data from the likes of banks,mortgages and other long standing loan companies during good and bad times as a starting point when starting their business model to grow the company,cover losses etc.
But does the average investor exposed to debt products for the first time really know how to handle a recession would they even be happy with a return of capital but half the promised interest rate and see it as still better then a bank or will the complaints start. So not sure if safe means no loss and a full return on investment or no loss and the investor may have to share the bad times with us for many investors but guess its a bit like having shares in a bank any bad news on mortgages etc and the price drops and maybe the div's so you share the pain.So while Zopa and the others expect and importantly accept defaults and maybe a drop in profits (or i guess a rise in losses for many) does the average investor?
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Post by samford71 on Dec 30, 2018 9:19:10 GMT
I made this point in Aug link and link. The fact that Zopa got through the 2008 recession is totally meaningless to their current situation. Their current default numbers, and net returns, are already worse than that. The issue is very simple and can be seen clearly in ONS data link (Figure 1). In the UK's sectoral balances, households have been running deficits for 8 quarters now (since 4Q16) i.e. savings rates are negative. In the last 30 years, there have been only two other quarters where households ran deficits (3Q88, 4Q88) so a run of 8 quarters is totally unprecedented. This negative saving rate is being caused by the UK government's policy of reducing the fiscal deficit. Since we run a current account deficit, then as they reduce the government deficit, private sector debt must increase by an equal and opposite amount. This is mostly being manifested as increasing household debt. Until the UK government decides to fiscally expand (or we magically run a flat balance of payments; unlikely since we've had one since the mid 80s), then this will continue to get worse. It's therefore no surprise that household default rates and default rates for micro-enterprises and smaller SMEs continue to rise. This directly impacts most big P2P lenders such as Zopa, RS and FC who lend to marginal credits that banks typically don't want to touch. The fact that globally liquidity conditions are also tightening and QE is being unwound (Quantitative Tightening) needs then to be added on top of this. |
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r00lish67
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Post by r00lish67 on Dec 30, 2018 10:01:12 GMT
I made this point in Aug link and link. The fact that Zopa got through the 2008 recession is totally meaningless to their current situation. Their current default numbers, and net returns, are already worse than that. The issue is very simple and can be seen clearly in ONS data link (Figure 1). In the UK's sectoral balances, households have been running deficits for 8 quarters now (since 4Q16) i.e. savings rates are negative. In the last 30 years, there have been only two other quarters where households ran deficits (3Q88, 4Q88) so a run of 8 quarters is totally unprecedented. This negative saving rate is being caused by the UK government's policy of reducing the fiscal deficit. Since we run a current account deficit, then as they reduce the government deficit, private sector debt must increase by an equal and opposite amount. This is mostly being manifested as increasing household debt. Until the UK government decides to fiscally expand (or we magically run a flat balance of payments; unlikely since we've had one since the mid 80s), then this will continue to get worse. It's therefore no surprise that household default rates and default rates for micro-enterprises and smaller SMEs continue to rise. This directly impacts most big P2P lenders such as Zopa, RS and FC who lend to marginal credits that banks typically don't want to touch. The fact that globally liquidity conditions are also tightening and QE is being unwound (Quantitative Tightening) needs then to be added on top of this. Very interesting, thanks. I somehow hadn't clocked that household saving had declined so sharply in recent months, although I've certainly noted increased default rates across the platforms. Have you detected any meaningful differences in performance thus far between the likes of RS/ZP/LW/FC in this situation i.e. are any coping better somehow, or are they all similarly afflicted? Also represents a further opportunity to chuckle grimly at the idea of platforms purporting to be 'fine' in the event of any form of Brexit. ISTM that even the most sanguine short-term forecasts for no-deal would leave our UK consumers/SME's knocked out flat on their backs from their currently teetering position.
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angrysaveruk
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Post by angrysaveruk on Dec 30, 2018 11:08:36 GMT
The issue is very simple and can be seen clearly in ONS data link (Figure 1). In the UK's sectoral balances, households have been running deficits for 8 quarters now (since 4Q16) i.e. savings rates are negative. In the last 30 years, there have been only two other quarters where households ran deficits (3Q88, 4Q88) so a run of 8 quarters is totally unprecedented. This negative saving rate is being caused by the UK government's policy of reducing the fiscal deficit. Since we run a current account deficit, then as they reduce the government deficit, private sector debt must increase by an equal and opposite amount. This is mostly being manifested as increasing household debt. Until the UK government decides to fiscally expand (or we magically run a flat balance of payments; unlikely since we've had one since the mid 80s), then this will continue to get worse. That is a very interesting statistic. Thanks for posting. When I first got into P2P i thought it was a bit of a one way bet - there had just been a recession and the government had announced they were going to print billions of pounds to prop up the economy. Although I have made some good money in P2P I am running down my holdings and going into cash. I think we are in for the mother of all crashes and I am going to try to buy some cheap shares when it happens, (of course I might well get the timing totally wrong as usual  )
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Post by davee39 on Dec 30, 2018 19:48:16 GMT
The estimated return at Zopa for loans up to 5 years is far too low compared with the risk. Instant access at 4.1% with Assetz looks better value. 2% is available in FSCS protected 12 month accounts, yields of 5 to 6% are available in stock market funds. With UK stocks at a two year low I expect a re-rating once Brexit settles down. Ratesetter are no longer growing, and are struggling to become profitable, certain other high risk lenders have already failed or are about to fail.
My P2P will continue to run down in favour of safer options.
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zlb
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Post by zlb on Dec 30, 2018 21:35:06 GMT
Good thread. Is there a way of finding out which debts were purchased in the recent QE/asset purchase round?
Who got the new money? I read newspaper articles, once, which said QE was simply money given to the banks to encourage them to lend...somewhat over-simplified.
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zlb
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Post by zlb on Dec 30, 2018 21:53:04 GMT
I made this point in Aug link and link. ....This negative saving rate is being caused by the UK government's policy of reducing the fiscal deficit. Since we run a current account deficit, then as they reduce the government deficit, private sector debt must increase by an equal and opposite amount. Hi samford71 thanks for this. I've had to look much of the terminology up, so I'm not an economist. Are you or anyone else able to explain how reducing fiscal deficit (import/export deficit) causes a negative savings rate? I also don't understand why private sector debt must increase in equal and opposite amount? It reads to a lay person that there must always be debt somewhere. Is that held as true?
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angrysaveruk
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Post by angrysaveruk on Dec 30, 2018 22:16:40 GMT
I made this point in Aug link and link. ....This negative saving rate is being caused by the UK government's policy of reducing the fiscal deficit. Since we run a current account deficit, then as they reduce the government deficit, private sector debt must increase by an equal and opposite amount. Hi samford71 thanks for this. I've had to look much of the terminology up, so I'm not an economist. Are you or anyone else able to explain how reducing fiscal deficit (import/export deficit) causes a negative savings rate? I also don't understand why private sector debt must increase in equal and opposite amount? It reads to a lay person that there must always be debt somewhere. Is that held as true? I think it might be because someone has to borrow the money if we consume more than we produce. If the government doesn't borrow it then consumers have to unless imports reduce
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aju
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Post by aju on Dec 31, 2018 0:26:52 GMT
Great stuff from samford71 , macq et al, thanks. I go away from my terminal for few hours for a meal with the family in Bath and come back and find its fired up a few people. It's all good stuff though some of it confirms to me that I too should perhaps start to run down both our Zopa invest sides now we are quite well loaded with the ISA side for now. I did my monthly data updates of summary estimates and it's very clear from our data that rates are reducing quite a bit and especially over the last 2 years so that's quite annoying, mind you many banks are still taking the yellow substance for the most part on rates anyway. On the household savings I thought it had been in decline for quite a while as down here in the "Shire of wilt" one might be forgiven for thinking for a long while now that people are struggling quite a bit and probably haven't had money to save for a lot longer than suggested by the so called stats. Mind you we do seem to have our fair share of Betting shops too which is odd if there is no spare cash. We even lost a Wetherspoons locally but to be honest we did have two within about 200 metres from each other. Zopa has taken to writing off loans in my view very cheaply, I'm not even sure they allowed the loans in the ISA side to get that far in terms of trying to get some returns back. The cynic in me said they made no loss, we did, and they have saved money in having to chase the loans too. This is probably going to happen more frequently but I have loans that have been paying off the defaults debt albeit considerably slowly for a good few years now. It is odd that a considerable number of recent loans did go bad and were just offloaded in this way. |
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macq
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Post by macq on Dec 31, 2018 8:18:29 GMT
without coming off topic to much or going "all our yesterdays" but thinking about household debt/savings. Over Xmas with family i was talking about growing up in North London in the early 60's and their experience before that in 50's.It seems like to pay for the food & house day to day that the furniture was on the so called never-never,the tallyman was used for some money for things like linens & towels and even good old Christmas was paid for weekly using the Xmas club at work(assuming i guess that the guy did not run off with the money!)and there was some debate as to when the shopping catalogue book came in but certainly in use when i arrived for baby clothes.But my Father some how still stuck money away when he had some overtime in the good old Post Office account
So guess at a certain level there has always been a high level of debt and not much saving
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Post by samford71 on Dec 31, 2018 8:38:59 GMT
r00lish67 . I haven't looked closely enough at which platforms might be doing better or worse. The data that is given out by platforms is fairly sparse and quite lagged. By the time you know, it's too late. I've had my concerns since mid-15, however, with Zopa. RS seems to have hit a few landmines as they branched out into property. FC default rates definately seem to be rising. The problem is that you can't extract what is due to the platforms' constant drive for expansion of orgination volumes (typically lowering loan quality), what is due to legacy NPLs and what is due to the underlying deterioration of household credit.
zlb . The best I can do is point you to something like this: link. In simple terms the UK is a net borrower from the rest of the world because of its current account deficit. We buy more from abroad than we sell. We must pay for this somehow. There are two choices: borrow (go into debt) or sell assets (bye bye London house, bye bye ARM etc). Both selling assets and borrowing money are effectively "negative saving". So on one side we have foreigners with positive savings from holding our debt or assets and on the other side the sum of the domestic players (govt, corps, households) must have equal and opposite negative saving. This is an accounting identity. The conclusion drawn from this is that private net saving is only possible when running a trade deficit if the government runs budget deficits. Alternately, the private sector is forced to dis-save when the government runs a flat budget or a surplus and the trade deficit exists.
Note that debt in itself may not be bad. If large corporates were going into debt to fund R&D, capital expediture etc this could be considered worthwhile. Similarly, the government borrowing (via say 50-year Gilts at 1.70%), when inflation runs at 2-3% is fine; you are being paid to borrow in real terms and have locked this in for 50 years. Using that money for infrastructure investment could also be considered good. The issue here is that it's households who are now running a deficit, that this is very unusual, and it's now been going on for 8 quarters. We don't know how this reduction in net savings is being distributed but there is little evidence to suggest it is the wealthy cohorts selling assets; it's poorer cohorts taking on debt. Moreover, they are not paying 1.7% for 50 years fixed!
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angrysaveruk
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Post by angrysaveruk on Dec 31, 2018 11:31:50 GMT
without coming off topic to much or going "all our yesterdays" but thinking about household debt/savings. Over Xmas with family i was talking about growing up in North London in the early 60's and their experience before that in 50's.It seems like to pay for the food & house day to day that the furniture was on the so called never-never,the tallyman was used for some money for things like linens & towels and even good old Christmas was paid for weekly using the Xmas club at work(assuming i guess that the guy did not run off with the money!)and there was some debate as to when the shopping catalogue book came in but certainly in use when i arrived for baby clothes.But my Father some how still stuck money away when he had some overtime in the good old Post Office account So guess at a certain level there has always been a high level of debt and not much saving I think the levels of credit today is probably alot greater than it was in the 50s and 60s. From what I understand outside of the Pawn shop most people did not have access to credit, and the scale of the loans were probably fairly small (perhaps a few weeks salary). 11% of the UK population have maxed out their credit cards which in my opinion is a pretty terrifying statistic. The simple truth is the majority of the western world is living way beyond it means and this debt bubble is going to burst at some point. Although there are probably a big differences in the levels of wealth, I would imagine the vast majority of people on this board are prudent finanically and careful what they spend and in the UK we are certainly the minority.
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