rogedavi
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Post by rogedavi on Oct 23, 2019 12:18:57 GMT
Collateral, Lendy and now FundingSecure
The question everyone must be thinking is which platform is next to go kaput.
For discussion
- are these isolated failures or part of a systemic meltdown within the industry
- is p2p viable in the long term
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Post by mrclondon on Oct 23, 2019 12:24:39 GMT
I've just posted this on the FS board which sums up my thoughts on the questions you pose Sad and frustrated is probably a fair reflection of my thoughts today. p2p could have been, should have been, far more than the mess of failure it is today. The warning signs were there mid 2017, before the recent high profile failures started. I really thought in the early days of p2p we were on the cusp of something revolutionary ... harnessing the collective knowledge and experience of those with money to invest (a proxy for 'successful' people, not a perfect correlation but close) to enable others to become 'successful' by undertaking 'projects' financed by us.
Just like dragons den most projects would fail to pass the whiff test, and would be dropped, a virtuous circle. Instead, platforms ignored the concerns of those able to apply their knowlege and experience and spot those projects that had a low probability of success, and allowed the ready supply of funds to fill the loans. Some platforms have tolerated the interventions on this forum, but ultimately ignored them, others have fought (and continue to fight) against having potential dirty linen aired in public. p2p platforms are essentially small tech startups, staffed by people with varying amounts of real life experience in the asset classes they are offering loans against. The governance of these platforms has been weak, with few outside the big players employing non-executive directors whose role it is to support, mentor and when neccessary challenge the executive team. If this reads like an obituary for p2p, then that is perhaps a fair inference. I have deliberately not referenced FS here, today's events are a mere sympton of a wider malaise.
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corto
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Post by corto on Oct 23, 2019 12:28:09 GMT
I would strongly suggest to not mention individual platforms supposed to run into troubles; at least not without good evidence. Bad rumours could cause unnecessary panic selling, if not damage to the platform.
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macq
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Post by macq on Oct 23, 2019 12:48:45 GMT
I've just posted this on the FS board which sums up my thoughts on the questions you pose Sad and frustrated is probably a fair reflection of my thoughts today. p2p could have been, should have been, far more than the mess of failure it is today. The warning signs were there mid 2017, before the recent high profile failures started. I really thought in the early days of p2p we were on the cusp of something revolutionary ... harnessing the collective knowledge and experience of those with money to invest (a proxy for 'successful' people, not a perfect correlation but close) to enable others to become 'successful' by undertaking 'projects' financed by us.
Just like dragons den most projects would fail to pass the whiff test, and would be dropped, a virtuous circle. Instead, platforms ignored the concerns of those able to apply their knowlege and experience and spot those projects that had a low probability of success, and allowed the ready supply of funds to fill the loans. Some platforms have tolerated the interventions on this forum, but ultimately ignored them, others have fought (and continue to fight) against having potential dirty linen aired in public. p2p platforms are essentially small tech startups, staffed by people with varying amounts of real life experience in the asset classes they are offering loans against. The governance of these platforms has been weak, with few outside the big players employing non-executive directors whose role it is to support, mentor and when neccessary challenge the executive team. If this reads like an obituary for p2p, then that is perhaps a fair inference. I have deliberately not referenced FS here, today's events are a mere sympton of a wider malaise.
interesting and very true write up and for me One of the points stands out - "the whiff test" as you call it has probably been undermined by the growth/band wagon of p2p platforms in the sense that their all chasing borrowers and maybe up to now there have been lenders if paid enough wishing to invest and so both are willing to block their nose to the whiff and lower their DD standards
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benaj
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Post by benaj on Oct 23, 2019 14:41:39 GMT
I am not going to talk about specific platforms. It seems odd some platforms have survived longer than expected even with worse expected performance for years.
It seems Col and lendy are being pushed into administration earlier than expected.
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rogedavi
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Post by rogedavi on Oct 23, 2019 16:28:06 GMT
I'm starting to think the whole business model is just the sequel to subprime 2008
i.e. lending to substandard borrowers (the ones that cant borrow from banks), packaging up the risk and selling it on to investors... then the investors engage in a race to the bottom hunting yield. the spread return doesn't match the inherent risk anymore. and then it blows up. the old saying Too Good to be True probably applies.
at least this time there will be wider contagion.
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zlb
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Post by zlb on Oct 23, 2019 16:31:50 GMT
Whilst I don't think it's right to point fingers and cause subsequent demise, I do think it's appropriate and constructive to look for commonalities in the platforms that have collapsed, and which other platforms look like this.
Although I thought that Lendy stood apart in its falsehoods, mis-selling, ineptitude, greed/denial, and personality problems.
What factors have led to this - add to the list - or are there too many and varied variables?
Valuation of security wrong.
Grow too quickly.
Loans dry up - should have just wound down the platform or stopped growth.
Personalities choosing the loan risk - too much risk-seeking / too inexperienced.
Legally inexperienced.
...
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Post by propman on Oct 23, 2019 16:47:06 GMT
Whilst I don't think it's right to point fingers and cause subsequent demise, I do think it's appropriate and constructive to look for commonalities in the platforms that have collapsed, and which other platforms look like this. Although I thought that Lendy stood apart in its falsehoods, mis-selling, ineptitude, greed/denial, and personality problems. What factors have led to this - add to the list - or are there too many and varied variables?
Valuation of security wrong. Grow too quickly. Loans dry up - should have just wound down the platform or stopped growth. Personalities choosing the loan risk - too much risk-seeking / too inexperienced. Legally inexperienced. ... I would point out that the very high interest junk bonds that they all invested in are very difficult to price. Lending money at rates that are only attainable as returns on capital of businesses that have a strong market advantage or who see an opportunity that others don't. If this is sustainable long term then you are talking about the greatest successes of the future and yet these must be companies that other lenders are not prepared to lend to without a huge premium. These exist, but it is VC that normally funds it and they require managerial oversight not available to P2P lenders.
I have been working in Property for over 20 years. Huge profits are available due to fortunate timing. But there are actual losses at each downturn. I don't think P2P Investors are geared up to take the ride and we are talking about those who wish to borrow much more than prudent investors are comfortable with (or better terms will be available through much of the cycle).
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Post by mrclondon on Oct 23, 2019 16:51:08 GMT
zlb whilst the factors you list are all relevant, the biggest single one is "trusting what the borrower claims".
At one level, as has been pointed out to me by several platforms, not do so would be to treat the borrower unfairly, but I maintain far more could be done in terms of loan monitoring, and setting of loan covenants.
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michaelc
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Post by michaelc on Oct 23, 2019 17:17:39 GMT
All the possible reasons given above don't make all that much sense to me because they seem to assume that the health of FS as a company is directly linked to the health of its loanbook and I'm not sure that is true.
From FS's point of view, was it so disastrous to be managing a badly performing loan book? So long as they were issuing and filling loans (which they were), they were taking fees. They would lose some redemption fees on loan default but was that in itself enough to tip them over? In other words they were taking fees on issue for all loans and fees on the fair proportion of loans that performed ok.
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zlb
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Post by zlb on Oct 23, 2019 17:44:59 GMT
zlb whilst the factors you list are all relevant, the biggest single one is "trusting what the borrower claims".
At one level, as has been pointed out to me by several platforms, not do so would be to treat the borrower unfairly, but I maintain far more could be done in terms of loan monitoring, and setting of loan covenants.
in what kind of way? like saying that they have professional architects who then can't build to fire regs? IMS who don't pick that up? How do these borrowers hoodwink platforms and not banks?
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Post by mattygroves on Oct 23, 2019 18:04:25 GMT
zlb whilst the factors you list are all relevant, the biggest single one is "trusting what the borrower claims".
At one level, as has been pointed out to me by several platforms, not do so would be to treat the borrower unfairly, but I maintain far more could be done in terms of loan monitoring, and setting of loan covenants.
in what kind of way? like saying that they have professional architects who then can't build to fire regs? IMS who don't pick that up? How do these borrowers hoodwink platforms and not banks? The banks won't touch them because they are too risky. The banks also employ people who are good at assessing credit risk built up over years of experience - not just people who are good at the tech side.
However, bottom line for me is that P2P loans are sub prime - hence some shady borrowers.
If P2P has got a future then we need strong companies with appropriate capitalisation so they can employ the right sort of people. It also probably needs to be much clearer who it's target investors are - I'm not sure it should be retail investors.
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Post by mrclondon on Oct 23, 2019 18:15:57 GMT
zlb whilst the factors you list are all relevant, the biggest single one is "trusting what the borrower claims".
At one level, as has been pointed out to me by several platforms, not do so would be to treat the borrower unfairly, but I maintain far more could be done in terms of loan monitoring, and setting of loan covenants.
in what kind of way? like saying that they have professional architects who then can't build to fire regs? IMS who don't pick that up? How do these borrowers hoodwink platforms and not banks? 95% of p2p borrowers would never be given credit by a bank (mainstream or challenger). There are many reasons here, some related to the borrowers themselves, but in greater part banks don't lend on high LTVs against residual value valuations, i.e. banks in recent years don't tend to lend against development projects, only against assets with a realisable value.
Yeah, your reference to architects and fire regs is very valid, and is one for now I have no answer.
Few platforms employ IMS, and even fewer let lenders read them in full. When an AC dev loan draws down the IMS has already made a first visit, and started assessing the project against planning conditions that need discharging. Most platforms take the view that monitoring condition diischarges is not their repsonsibility ... sorry, but its not possible to achieve practical completion on a dev unless all planning conditions have been discharged. Leaving the monitoring to individual retail investors is really not acceptable. So, I would have loan covenants based on condition discharge, and would use IMS on all dev projects ... I believe the reduction in rate to cover the cost to be well worthwhile.
The exit strategy of many loans is refinance. Mainstream finance providers expect financial accounts to be filed on time, and for the detail to bear resemblance to other data points. Asking to refinance a £500k loan when the accounts show creditors of just £100k is going to be a hindrence. I would have covenants detailing the standard and timelines of financial reporting that would be expected.
In other words, its accepting that the typical p2p borrower hasn't really got a clue what they are doing, and providing the support and guidance necessary either through loan covenants, IMS monitoring or more informal measures to maximise the chances of a successful exit for the loan.
Those following my posts in DDC will realise that I often report on planning application status changes on the day they occur. That happens because I have monitoring software scanning once an hour 24/7 for changes in the relevant web pages, with email alerts on changes. I've queried some issues with platforms who don't even have the planning reference on file, let alone are proactively monitoring for issues.
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zlb
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Post by zlb on Oct 23, 2019 18:31:20 GMT
in what kind of way? like saying that they have professional architects who then can't build to fire regs? IMS who don't pick that up? How do these borrowers hoodwink platforms and not banks? 95% of p2p borrowers would never be given credit by a bank (mainstream or challenger). There are many reasons here, some related to the borrowers themselves, but in greater part banks don't lend on high LTVs against residual value valuations, i.e. banks in recent years don't tend to lend against development projects, only against assets with a realisable value.
Yeah, your reference to architects and fire regs is very valid, and is one for now I have no answer.
Few platforms employ IMS, and even fewer let lenders read them in full. When an AC dev loan draws down the IMS has already made a first visit, and started assessing the project against planning conditions that need discharging. Most platforms take the view that monitoring condition diischarges is not their repsonsibility ... sorry, but its not possible to achieve practical completion on a dev unless all planning conditions have been discharged. Leaving the monitoring to individual retail investors is really not acceptable. So, I would have loan covenants based on condition discharge, and would use IMS on all dev projects ... I believe the reduction in rate to cover the cost to be well worthwhile.
The exit strategy of many loans is refinance. Mainstream finance providers expect financial accounts to be filed on time, and for the detail to bear resemblance to other data points. Asking to refinance a £500k loan when the accounts show creditors of just £100k is going to be a hindrence. I would have covenants detailing the standard and timelines of financial reporting that would be expected.
In other words, its accepting that the typical p2p borrower hasn't really got a clue what they are doing, and providing the support and guidance necessary either through loan covenants, IMS monitoring or more informal measures to maximise the chances of a successful exit for the loan.
Those following my posts in DDC will realise that I often report on planning application status changes on the day they occur. That happens because I have monitoring software scanning once an hour 24/7 for changes in the relevant web pages, with email alerts on changes. I've queried some issues with platforms who don't even have the planning reference on file, let alone are proactively monitoring for issues.
yes, I've seen your work there! Atrocious - I've emailed platforms with questions about their loans, or about a statement made about them in the press, and they say thanks for bringing it to their attention and 'will change it straight away'. So expertise of the core staff is a significant issue. Why can't fintech be used to deliver some returns on loans to reliable borrowers?
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Post by gravitykillz on Oct 23, 2019 19:01:38 GMT
Funding circle and fund ourselves ! I would stay away from both.
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