Mousey
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Post by Mousey on Oct 23, 2019 22:05:33 GMT
That consent order was submitted/filed on the same date the "new" management resigned as directors, 15 Oct. Is this just the date it made its way to E-Filing Service? I'm out of my depth here but, is the date a coincidence? The consent order is actually dated 2nd October 2019 and the Administrators "were consulted by the directors of the Company (FS) on 8 October 2019". I'm not sure if we will ever know whether it's a coincidence or not.
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r00lish67
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Post by r00lish67 on Oct 23, 2019 22:33:54 GMT
Just catching up. I've seen several references to this event prompting people to withdraw from P2P entirely as a doomed enterprise. Is that really the case though? Are all of you saying that also withdrawing your investments from Ratesetter and Assetz Capital off the back of FS failing, for instance?
I don't see this as the end of P2P, just another unfortunate chapter in thinning the crowd of a nascent industry.
What is worthy of note IMV though is that FS, Collateral, and Lendy were all very small operations offering very high interest rates to lenders off the back of even higher interest rates taken from borrowers. I still think there's a place for P2P of a different kind. I'm just not convinced that there is (or ever was, in hindsight) a sweet spot risk-adjusted place for successful retail investment in sub-prime lending. This extends to those platforms still happily/less happily offering it btw.
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Post by mrclondon on Oct 23, 2019 23:44:57 GMT
r00lish67 , what you say makes perfect sense, and other variants of p2p shouldn't be automatically dismissed as having systemic issues simply because of what has happened at FS/L/COL. For example Zopa and other personal finance offerings, or Growth Street's SME cashflow product, or indeed those platforms offering loans to the BTL sector.
What does need some thought though is that some of the apparently lower rate platforms are still offering at least a proportion of their loans based on similiar asset classes to FS/L/COL. Perhaps the best example here is Wellesley & Co which has suffered some eyewatering losses against development loans. There is lots of discussion on the Loanpad board currently about just how risky the underlying loans are (before mitigation of low LTV) given the increasing focus on large dev projects and land without planning.
My current feeling is that there is a systemic issue with assessing the risk of development loans and land bridging loans, dervived primarily from using residual value valuations to determine the "value" of the security. This is essentially the maximum price that could be achieved for the asset, and has no bearing at all on what the asset might realise, generally only a small fraction thereof. In general, I don't believe (nor have I ever) such loans or derivates are appropriate for retail investors. Even at AC we see the occaisonal hole in what is a pretty formidable commitment to IMS monitoring (e.g. 797 in East Leeds, which the developer appears to have just downed tools for no apparent reason), and failures in projects at the planning stage (e.g. potentially 812 in Greenwich which you have to stand in the river - at low tide ! - to spot the problem).
i know RS still has its fans, but do people really know what they are investing in anymore ? Do people know what the key risks are amongst the underlying loans ? (before mitigation by the PF) I don't, so won't invest.
Some current p2p lenders will likely take the view that they don't have the time or inclination to research whether certain variants of p2p are suffceintly removed from the types of assets that formed the bedrock at FS/L/COL and hence decide to exit the sector completely. I noted earlier today larger than normal discounts at MT, and this evening someone appears to have dumped a large portfolio on the PL SM, both examples of non-development loans (in the main) being tossed out.
The vast majority of p2p platforms started with small loans in some niche or other, but found it impossible to scale the business without turning to medium/large development projects and land bridges which the banks essentially will not fund. At the time regulation of the p2p sector started in 2014, several voices across the industry intoned that a platform would need to write £30m-£50m of loans every year after their initial startup phase to be sustainable long term and cover the increasing costs associated with regulation. Whether that range is itself top heavy is probably immaterial, the point is that small loans in some niche or other will rarely amount to tens of millions per annum.
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Post by crystal on Oct 24, 2019 6:11:48 GMT
Although FS had gone too far down the path of inflated valuations, this should not be the end of P2P - though it should be the end of wilfully negligent valuations by surveyors who should (and probably did) know better.
One would imagine that the administrators ought to limit the extent of losses by initiating a PI claim against those companies. Hopefully their cover extends to the sum of the valuations claimed.
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rocky1
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Post by rocky1 on Oct 24, 2019 7:23:10 GMT
how does this work now then FS have 2 charges outstanding the main 1ithink is to raj Kumar the resigned director who put a shed load in and also was a serious investor in the past.as with LY how can directors just throw in the towel and walk away with no questions asked.
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m2btj
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Post by m2btj on Oct 24, 2019 7:38:13 GMT
Although FS had gone too far down the path of inflated valuations, this should not be the end of P2P - though it should be the end of wilfully negligent valuations by surveyors who should (and probably did) know better. One would imagine that the administrators ought to limit the extent of losses by initiating a PI claim against those companies. Hopefully their cover extends to the sum of the valuations claimed.One would expect administrators to look at the role of valuers in this whole sorry saga. However, I'm not aware of it happening with any P2P failure to date. I have no doubt that valuers have a lot to answer for. However, professional gross incompetence would appear to be richly rewarded as the current Thomas Cook Select Committee hearings reveal.
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gc
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Post by gc on Oct 24, 2019 7:39:46 GMT
Although FS had gone too far down the path of inflated valuations, this should not be the end of P2P - though it should be the end of wilfully negligent valuations by surveyors who should (and probably did) know better. One would imagine that the administrators ought to limit the extent of losses by initiating a PI claim against those companies. Hopefully their cover extends to the sum of the valuations claimed. I hear you on this, though from what we have all seen over the past year or so, when these companies see (our) money, their eyes change colour and good business practice goes straight out of the window - eg, inflated valuations etc. They know it isn't their money they are playing with so more risks taken =, and some that really shouldn't be. After doing this for a fair few years now, one begins to see a pattern emerging. They get too greedy as it isn't their funds they are playing with. Not all do this but a good percentage, which puts investors in a dangerous position as not only do we have to contend with some loans that will not pay (part of the cause that we accept), but also greedy firms overstretching. Put these two percentages together and overall it is actually higher than one may think.
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arby
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Post by arby on Oct 24, 2019 8:43:39 GMT
Although FS had gone too far down the path of inflated valuations, this should not be the end of P2P - though it should be the end of wilfully negligent valuations by surveyors who should (and probably did) know better. One would imagine that the administrators ought to limit the extent of losses by initiating a PI claim against those companies. Hopefully their cover extends to the sum of the valuations claimed. FS (used to) have a strong incentive to pursue such claims as any recovery from a valuer generates confidence in its lenders that the platform is addressing legitimate concerns and has also accessed an alternative revenue stream. I don't see any incentive for an administrator to chase down such a difficult reward; we all know the platform isn't a going concern, while the administrators will be accruing costs in chasing such claims with little chance of recouping the money (which ultimately we pay for).
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pip
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Post by pip on Oct 24, 2019 8:47:22 GMT
Although FS had gone too far down the path of inflated valuations, this should not be the end of P2P - though it should be the end of wilfully negligent valuations by surveyors who should (and probably did) know better. One would imagine that the administrators ought to limit the extent of losses by initiating a PI claim against those companies. Hopefully their cover extends to the sum of the valuations claimed. FS (used to) have a strong incentive to pursue such claims as any recovery from a valuer generates confidence in its lenders that the platform is addressing legitimate concerns and has also accessed an alternative revenue stream. I don't see any incentive for an administrator to chase down such a difficult reward; we all know the platform isn't a going concern, while the administrators will be accruing costs in chasing such claims with little chance of recouping the money (which ultimately we pay for). Surely the right thing to do in such cases would be for the administrators to sell off the entire loan book for the best price they can and return proceeds to investors. Then the people who buy the loan book, will have the inclination and probably experience to maximise the loan books value and FS investors will at least get something back without the proceeds being eaten by administrator £400+ an hour fees.
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Post by ron on Oct 24, 2019 9:09:16 GMT
FS (used to) have a strong incentive to pursue such claims as any recovery from a valuer generates confidence in its lenders that the platform is addressing legitimate concerns and has also accessed an alternative revenue stream. I don't see any incentive for an administrator to chase down such a difficult reward; we all know the platform isn't a going concern, while the administrators will be accruing costs in chasing such claims with little chance of recouping the money (which ultimately we pay for). Surely the right thing to do in such cases would be for the administrators to sell off the entire loan book for the best price they can and return proceeds to investors. Then the people who buy the loan book, will have the inclination and probably experience to maximise the loan books value and FS investors will at least get something back without the proceeds being eaten by administrator £400+ an hour fees. I tend to disagree as this would fundamentally breach the link between a lender and their specific loans, by socialising the losses. Selling the loan book would be a good idea only for those lenders that are stuck in terrible loans, which admittedly are many. But it would be very unfair to those lenders holding decent loans, where they can surely hope to recover all of their investment (there are quite a few that come to my mind, residential bridge loans with low LTVs).
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Post by mrclondon on Oct 24, 2019 9:10:27 GMT
Although FS had gone too far down the path of inflated valuations, this should not be the end of P2P - though it should be the end of wilfully negligent valuations by surveyors who should (and probably did) know better. One would imagine that the administrators ought to limit the extent of losses by initiating a PI claim against those companies. Hopefully their cover extends to the sum of the valuations claimed. Unfortunately the vast majority of valuations for p2p loans are correct at the time they are produced and under the assumptions made. Development sites are valued on a residual value basis from the projects completed GDV, they do NOT represent the likely sale price of the site as is. I'm afraid its simply a myth that there are easy picking to be made by claiming against RICS insurances.
Yes there are examples of inflated values, but they are few and far between. MT Putney is a good example .... valued based on GDV of a luxury 'executive' property on an infill site overlooked by many 'bog standard' properties at the end of a narrow lane., when it should have been based on the GDV of a bog-standard semi (or maybe terrace of 3). There was a VR on AC (loan since repaid) which valued a terrace's GDV based on comparables £ / sq footage but the comparables were all detached in a better part of town (better comparables were available but not used).
Its possible the FS tower block was over valued by underestimating the amount of work needed to complete the refurb, ditto MT Birkenhead. But I fear these will be hard to prove.
There is presumably a reason that banks tend not to lend against development sites ... just maybe its because they are in general poor security for loans.
The bottom line is IMO if you lend on a development project / site and it fails to reach completion you should expect to lose a majority of your capital.
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pip
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Post by pip on Oct 24, 2019 9:14:08 GMT
Surely the right thing to do in such cases would be for the administrators to sell off the entire loan book for the best price they can and return proceeds to investors. Then the people who buy the loan book, will have the inclination and probably experience to maximise the loan books value and FS investors will at least get something back without the proceeds being eaten by administrator £400+ an hour fees. I tend to disagree as this would fundamentally breach the link between a lender and their specific loans, by socialising the losses. Selling the loan book would be a good idea only for those lenders that are stuck in terrible loans, which admittedly are many. But it would be very unfair to those lenders holding decent loans, where they can surely hope to recover all of their investment (there are quite a few that come to my mind, residential bridge loans with low LTVs). Ron I get your point. However I fear that if the administrators tried to run down the loan book, the fees may just eat up any returns. Typically they charge £400+ an hour for even pretty junior staff. The administrator fees (I believe) will be paid before any money is returned to investors. Therefore while in your preferred scenario the proceeds from loans may not be socialised, I believe the administrator fees on recovering loans would be. I therefore think it may be in the best interest of all for the loan book to be sold and the returns socialised but I don't know. I also highly doubt that the administrator has the inclination to turn into a pretty substantial debt recovery business, it's a tricky and regulated area that needs specialist knowledge.
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Post by ron on Oct 24, 2019 9:21:40 GMT
I tend to disagree as this would fundamentally breach the link between a lender and their specific loans, by socialising the losses. Selling the loan book would be a good idea only for those lenders that are stuck in terrible loans, which admittedly are many. But it would be very unfair to those lenders holding decent loans, where they can surely hope to recover all of their investment (there are quite a few that come to my mind, residential bridge loans with low LTVs). Ron I get your point. However I fear that if the administrators tried to run down the loan book, the fees may just eat up any returns. Typically they charge £400+ an hour for even pretty junior staff. The administrator fees (I believe) will be paid before any money is returned to investors. Therefore while in your preferred scenario the proceeds from loans may not be socialised, I believe the administrator fees on recovering loans would be. I therefore think it may be in the best interest of all for the loan book to be sold and the returns socialised but I don't know. I also highly doubt that the administrator has the inclination to turn into a pretty substantial debt recovery business, it's a tricky and regulated area that needs specialist knowledge. I think you raised a very fair point, ie. where the remuneration for the administrators will come from. We have a good precedent with Lendy, but I haven't studied it - anyways, it's in the administrators' best interest for the administration to last as long as possible, provided that they're paid, and therefore not to quickly sell the loan book. In any case, we have a GBP 80m loan book, and I think the administrators' fees can be in the context of GBP 1m per year. That's not a huge impact, as in 4 years it would be c. 5% of the total outstanding. For those lenders that would also recover accrued interest from their loans, it would only mean a reduction in the interest received, which would be fair enough. Obviously these are just speculations, but I feel that selling the whole loan book would be unfair and also achieve a very low price, lower that what could be recovered, net of the administration's fees
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Post by mattygroves on Oct 24, 2019 9:25:27 GMT
FS (used to) have a strong incentive to pursue such claims as any recovery from a valuer generates confidence in its lenders that the platform is addressing legitimate concerns and has also accessed an alternative revenue stream. I don't see any incentive for an administrator to chase down such a difficult reward; we all know the platform isn't a going concern, while the administrators will be accruing costs in chasing such claims with little chance of recouping the money (which ultimately we pay for). Surely the right thing to do in such cases would be for the administrators to sell off the entire loan book for the best price they can and return proceeds to investors. Then the people who buy the loan book, will have the inclination and probably experience to maximise the loan books value and FS investors will at least get something back without the proceeds being eaten by administrator £400+ an hour fees. Selling the loan book would be the quickest option but are lenders willing to take what would be a substantial haircut by doing so ? Whoever buys it will want to have a decent profit of their own after paying their own administrators to chase most of the loans all of which reduces the price they’d be willing to pay.
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pip
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Post by pip on Oct 24, 2019 9:50:02 GMT
Ron I get your point. However I fear that if the administrators tried to run down the loan book, the fees may just eat up any returns. Typically they charge £400+ an hour for even pretty junior staff. The administrator fees (I believe) will be paid before any money is returned to investors. Therefore while in your preferred scenario the proceeds from loans may not be socialised, I believe the administrator fees on recovering loans would be. I therefore think it may be in the best interest of all for the loan book to be sold and the returns socialised but I don't know. I also highly doubt that the administrator has the inclination to turn into a pretty substantial debt recovery business, it's a tricky and regulated area that needs specialist knowledge. I think you raised a very fair point, ie. where the remuneration for the administrators will come from. We have a good precedent with Lendy, but I haven't studied it - anyways, it's in the administrators' best interest for the administration to last as long as possible, provided that they're paid, and therefore not to quickly sell the loan book. In any case, we have a GBP 80m loan book, and I think the administrators' fees can be in the context of GBP 1m per year. That's not a huge impact, as in 4 years it would be c. 5% of the total outstanding. For those lenders that would also recover accrued interest from their loans, it would only mean a reduction in the interest received, which would be fair enough. Obviously these are just speculations, but I feel that selling the whole loan book would be unfair and also achieve a very low price, lower that what could be recovered, net of the administration's fees Ron while the loan book may have a face value of £80m it's true value is hard to determine and almost certainly way way less than this. FS already admitted that some of the assets securing the loans were worth way way less than advertised (see the park homes for example), others where FS didn't properly get security over the asset (see art loans), others (probably a lot) look like cases of large scale fraud, others where the underlying project is just a mess and giving the project a loan was always highly speculative (see speedboats). To use my analogy I used yesterday, even if there are leaves on the tree to fall off, the cost of shaking the tree to get those leaves off will be huge. Many of the cases will require lengthy legal cases and investigations and even then the outcome may be zero. Therefore the costs are not just the administrator fees but the legal costs of recovering the loans. If I changed your sums (purely speculative) to what I think may be realistic this is what I see in the case of an administrator - amount of loanbook recovered £7m, legal fees £4m, administrator fees £3m, amount returned to investors £0m. Maybe I am being pessimistic, but FS failed for a reason, the loanbook is toxic, being in administration doesn't change that. If the administrators could sell the loanbook for £5m, do a quick administration costing £1m, they could return £4m to investors. Not a good outcome but may be the best one can hope for!
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