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Post by lingield on May 13, 2020 16:46:44 GMT
By rollover borrowers, I think there are some property development loans where property developers have had the mis-fortune to complete their projects in March/April/May - that can't be helpful for them either in terms of sales or re-financing. I assume that these loans have been 'rolled over' somehow, either that or the PF would get blow up very quickly!!!!! if they have been rolled over, I suspect the borrower has had to pay a premium in some guise or another, that premium could be contributed to the PF? So you could have 'good' borrowers paying for 'bad' borrowers which is positive for the investors. Given the limited liquidity available to RS, i also suspect that the demand for loans greatly exceeds the supply of cash, and therefore I think RS would also be able to extract a premium from new borrowers - if the proportion allocated to the PF is increased accordingly, it should all help to getting the PF back to an acceptable level that will give investors confidence in the platform.
All of this will take time, but I do not think that all is lost yet.
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Post by shanghaiscouse on May 13, 2020 16:53:44 GMT
25 places between cinereus 373761 and dennispj 373786 and 1.3 million released so maybe a high proportion of this is for the 1 and 5 year market.This is going to be a very long wait for many and probably more interest and maybe capital losses there's no maybe about it. I see a lot of wishful thinking here. having a provision fund only delays the inevitable until the fund runs out. then according to the T&Cs they can go into capital. I doubt RS has any better underwriting than say fundinc circle, where losses on recent cohorts are horrific, 20-25% on 2018 loans. this is coming down the pipe, just delayed while the cushion lasts, and at least on RS everyone shares in the loss as everyone props up the fund, unlike funding circle where the losses hit the poor saps (like me) who were allocated those loan parts.
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beagle
Investor in ratesetter, funding circle, lendy (lesson learnt) and AC
Posts: 670
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Post by beagle on May 13, 2020 16:54:59 GMT
not your finest effort, but 40 million is good. I only wonder how big the queue truly is given the crawling movement.
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beagle
Investor in ratesetter, funding circle, lendy (lesson learnt) and AC
Posts: 670
Likes: 322
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Post by beagle on May 13, 2020 16:57:54 GMT
Agree, likely their underwriting is no better. however, i would have thought if the position was worse, they would suspend interest totally and that would balloon the PF. remember this covid stuff wont last forever, it is more likely we will be waiting for our money in access and by that time some other issue would be cropping up.
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Post by lingield on May 13, 2020 17:14:40 GMT
I think having the provision fund is helpful for investors, not because it is there to protect investors against default but because it makes Ratesetter a 'quasi' bank, it mutualises the risk not only as between investors but also with Ratesetter. Unlike FC, if you lost one investor it was bad luck for that investor. With Ratesetter if there is a capital loss - you will lose all investors and Ratesetter is finished.
I cannot be sure that Ratesetter will survive, but I am very confident that they will be doing everything they can to try to survive and get through this crisis. And the only way they can do this is to restore the PF to an acceptable level. As investors we only see the interest rate hair cut, which is only part of the picture.
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Post by diversifier on May 13, 2020 19:25:33 GMT
Borrowers won't be paying more, that's specifically addressed in the FAQ. To be fair, if you took a loan from a bank and they asked you to chip in more as they were struggling a bit, I think we'd all tell them (rightly) to do one It's the opposite really, borrowers are obliged to be treated with support and forbearance. Which last month cost us £5,000,000 from the PF. Agree though that capital losses aren't guaranteed. I hope that the current haircut is sufficient but it's all dependent on, well, everything. edit: sorry see you mean new borrowers...well.....I doubt it really. Just because such and such a financial institution is struggling, doesn't mean they can offer uncompetitive rates. Re: rollover borrowers, the rollover is just an illusion we suffer under, borrowers just have their loan term, and that's it. Wrong question. The right question is: “How are the competing institutions managing to undercut economic lending interest rates? How can they afford to lend at the same rate as six months ago, when the risk margin required to cover defaults has increased by 5-10%?” And the answer of course is, “Because they know the government will bail out their losses, just like in 2008”. As a large bank, the more you lend and the more you lose, pushes you up the government’s must-rescue list, and gets you *more free money*. Whilst simultaneously positioning you as having a social conscience, and making friends in government which you need. On an unrelated topic, Goldman Sachs received $10bn TARP in 2008, got into retail banking with their “Marcus” account a couple years back after not doing so for 150 years, and now offer the leading depositor interest rate. The question you should be asking: “If I lend to undercut the realistic default rate, do I either stand to receive government free money, or Boris / Rishi’s phone number”. If the answer is no, what are you paying for?
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Post by shanghaiscouse on May 13, 2020 19:53:00 GMT
Actually the problem for P2P is that we are not part of a 'systemically important' financial institution like a bank. Banks will always get baled out because they can stop the payment system working. That's the gun they always have in their pocket waiting to put at the head of the government. P2P lenders and the P2P platforms have no such gun available.
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Post by captaincodeman on May 13, 2020 20:37:13 GMT
Remember that the provision fund coverage was already falling and that was from the level planned for regular, "normal life", happy-time operations.
The situation with Covid is unprecedented - there's already a massive spike in unemployment being masked somewhat by emergency benefits but that can't go on forever. At some point people will have borrowed money that they can't repay and that means defaults will raise way higher than they would normally be expected to.
If you believe the provision fund will sustain the level of defaults were looking at, then I think you deserve the biggest, goldest, pointy starred optimist badge available.
There is unlikely to be any bailout because part of the "allure" of P2P lending was that it "wasn't like the banks". One of the reasons for that is it wasn't part of any centralized government protection system that banks are typically obliged to be part of, the thing that guarantees you'll get your money back if the institution fails.
The reward for not being part of regular bank lending was higher returns, but higher returns coupled with higher risk. If even the sudden global economic downturn caused by Covid wouldn't be enough to scupper things, then I think my idea of "risk" was wrong.
I think most of us should be bracing for some bad news in future. The cut in interest is "the cat's on the roof" message.
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voss
Member of DD Central
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Post by voss on May 14, 2020 7:00:12 GMT
Actually the problem for P2P is that we are not part of a 'systemically important' financial institution like a bank. Banks will always get baled out because they can stop the payment system working. That's the gun they always have in their pocket waiting to put at the head of the government. P2P lenders and the P2P platforms have no such gun available. But why does the bale out have to take the form of a gift to the bank? Why doesn't the government get a stake in the business?
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beagle
Investor in ratesetter, funding circle, lendy (lesson learnt) and AC
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Post by beagle on May 14, 2020 9:16:54 GMT
That couldn't work, it is politically to risky. A bail out is one thing but investing into an investment platform is different and not responsible.
Why would the average man/woman want his/her taxes used for p2p lending. As where would it end? Investment platforms, stock platforms etc
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Post by scepticalinvestor on May 14, 2020 9:56:57 GMT
On an unrelated topic, Goldman Sachs received $10bn TARP in 2008, got into retail banking with their “Marcus” account a couple years back after not doing so for 150 years, and now offer the leading depositor interest rate.
Not anymore. They cut it to 1.05% a few days ago. The leading rate for an instant/easy-access FSCS protected savings account is now the Freedom account from RCI Bank at 1.2%. God knows how long that will last.
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Post by lingield on May 14, 2020 10:13:20 GMT
I am trying to look at this objectively. There is £64,954,124 projected to be available to cover capital (this would mean zero interest for investors!). There are loans of £830,694, 865 in the portfolio. So non-recoverable defaults would have to hit 7.82% to put capital at risk. The current projected default rate is 4.72%.
In the 2008 financial crisis, Zopa defaults hit 5.54% at their peek. So this crisis would have to be over 40% worse than the global financial crisis before capital is exposed. All of this assumes, that there are no mitigation measures or bailouts of any shape or form. I suspect Ratesetter may be instigating mitigation measures by ensuring that new borrowers (including rollover borrowers as described in my post above), and there is clearly a prospect of some form of limited bailout, most likely from shareholders (say an additional £10,000,000 to keep the business alive).
Clearly if non-recoverable defaults hit 20-25% then investors will be stuffed but that it a would make this crisis more than four times bigger than the financial crisis of 2008 (on the assumption that Ratesetter and Zopa have similar underwriting standards). It is much more likely that defaults will come in between 5.54% and 10%. Admittedly, it gets tricky when defaults rise above 7% but there is a reasonable prospect of capital remaining in tact through to a default rate of say, 8 or 9% (if mitigation measures are introduced by Ratesetter) - this would mean that the financial fall out of Covid 19 would have to be 60% worse than the 2008 crisis before our capital is at risk.
There is no bright outlook, we will be locked in for the term of the loans with zero interest. Whilst our capital is not protected the economic situation has to get really bad before defeat becomes inevitable and accept that there will be a capital loss.
Do I still get my gold star for optimism?
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Post by oppsididitagain on May 14, 2020 10:34:03 GMT
I am trying to look at this objectively. There is £64,954,124 projected to be available to cover capital (this would mean zero interest for investors!). There are loans of £830,694, 865 in the portfolio. So non-recoverable defaults would have to hit 7.82% to put capital at risk. The current projected default rate is 4.72%. In the 2008 financial crisis, Zopa defaults hit 5.54% at their peek. So this crisis would have to be over 40% worse than the global financial crisis before capital is exposed. All of this assumes, that there are no mitigation measures or bailouts of any shape or form. I suspect Ratesetter may be instigating mitigation measures by ensuring that new borrowers (including rollover borrowers as described in my post above), and there is clearly a prospect of some form of limited bailout, most likely from shareholders (say an additional £10,000,000 to keep the business alive). Clearly if non-recoverable defaults hit 20-25% then investors will be stuffed but that it a would make this crisis more than four times bigger than the financial crisis of 2008 (on the assumption that Ratesetter and Zopa have similar underwriting standards). It is much more likely that defaults will come in between 5.54% and 10%. Admittedly, it gets tricky when defaults rise above 7% but there is a reasonable prospect of capital remaining in tact through to a default rate of say, 8 or 9% (if mitigation measures are introduced by Ratesetter) - this would mean that the financial fall out of Covid 19 would have to be 60% worse than the 2008 crisis before our capital is at risk. There is no bright outlook, we will be locked in for the term of the loans with zero interest. Whilst our capital is not protected the economic situation has to get really bad before defeat becomes inevitable and accept that there will be a capital loss. Do I still get my gold star for optimism? Agreed. Remember the Govt is paying 80% of some people wages, and issuing 0% loans for certain business. I think we will start to see a clearer picture of the fallout in 2/3months time I have said this on another thread : If you want to help the platform, and indirectly help everyone who has invested with RS, cancel your withdrawal request (If you don't need the money for bills etc) . The amount of withdrawals is putting a huge strain on the platform. Where do you expect RS to get the funds from to repay you ? These withdrawals are using up liquidity, which could be lent to people/businesses etc, generate fee's, more money for the PF etc etc I think the capital coverage ratio is above 100 and the provision fund around 115% ? So theoretically , if no one touched anything we will all come out of this ok. You might even get some early repayments when the PF kicks in on some loans. But I understand in the real world, things are different and it doesn't work like that - Fear, Panic delays on withdrawals, creates more fear/panic just a vicious circle- So I get you have to look after your own interests. FYI - There are people in the queue waiting for over 250K in one request, thats a 1/4 of the daily withdrawals at the moment ! So we may drop from the average of 10 a day.
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Post by shanghaiscouse on May 14, 2020 11:09:57 GMT
On an unrelated topic, Goldman Sachs received $10bn TARP in 2008, got into retail banking with their “Marcus” account a couple years back after not doing so for 150 years, and now offer the leading depositor interest rate.
Not anymore. They cut it to 1.05% a few days ago. The leading rate for an instant/easy-access FSCS protected savings account is now the Freedom account from RCI Bank at 1.2%. God knows how long that will last.
Indeed, that's exactly why GS went into retail banking. At the time of the crisis, there was a big debate about whether or not Ibanks should get access to the same funds as commercial banks. As a result, many ibanks (those remaining, anyway) developed or bought retail commercial banks to make themselves more systemically important.
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Post by davee39 on May 14, 2020 11:22:30 GMT
I am not greatly optimistic. One problem is the way the pf works. A three month payment holiday might be less of a problem if each one did not result in the loan being fully repaid from the pf. This has led to high payouts and severe depletion of the interest cover.
When I started with RS the coverage ratio was significantly higher and the fund was made up of real money, not expected future contributions. I have been withdrawing repayments for two years, the 3 month payment holidays triggered my RYI on 5 year funds, made on 1st April, and possibly unlikely to get to front of the queue before the loans repay.
RS have repaid about £40m in the last two months, and are still processing access requests from the first day of the crisis (12th March).
The next step will be interest reduced to zero and to hope that the country can get back to whatever work might be left, with the expectation that after the payment holidays the provision fund coverage recovers.
An equal hope is that everyone else cancels their withdrawal requests and I get to the front more quickly.
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