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Post by badlord on Mar 14, 2020 15:56:26 GMT
Those of you who are active on Mintos might have noticed the recent increase in the EUR interest rates on the platform. You can now find 16% loans from Mogo. Naturally, many other loan originators cranked up the interest on their loans. The likely effect of this increase will be another record month as measured by customer investments on the primary market. The approach that Mintos uses is the affiliated nature of some of its loan originators. Mogo, Hipocredit, Lendo are all affiliated companies. For each of them Mintos has the following mention in the page of the corresponding loan originator, e.g. Mogo page on Mintos states: Some of the equity investors in the Loan Originator and Mintos overlap.It looks like Mogo is the primary vehicle that Mintos employs to control interest rates on the platform. It is a bit of their own ECB/FED. It is not the first time Mintos turns to Mogo for help with increasing the rates on the platform and hence its attractiveness. The same happened in 2018 and 2019. 2018Interest for Mogo loans went up to 14% in May-June 2018, and Mintos/Mogo added a campaign on top of it, giving investors a prospect for making 15-16%. Then in July 2018 all these loans were bought back. It was justified on the grounds that Mogo had placed a bond at a yield of around 9% and as a result it made sense for it to buyback loans yielding more. The communication at that time stated that due to this improved financing situation for Mogo there would be no more Mogo loans with rates higher than 11% placed. Mogo will repurchase part of its loans on Mintos following the bond issuance . Relevant quote: As a result, Mogo will reduce the interest rate at which it sells loans to investors on the marketplace. The net annual return rate for Mogo loans will be up to 11%. This reflects the lower risk profile of Mogo as a loan originator and loan servicer, whilst still providing ample opportunities for investors to earn great risk-adjusted returns.
The interest rates on the platform dropped to their 8.5%-10.5% usual range. 2019In May 2019 Mintos-Mogo started acting inconsistently with that statement of capping the yield on Mogo loans to 11% by again placing Mogo loans with lucrative rates of 15%-16%. In September a huge amount of these loans started to be bought back so that one would sometimes be faced with a need to find placements for amounts on the order of 1K+/day, while the rates dropped to their usual 8.5%-10.5% range. By November all 15%-16% Mogo loans had been bought back. BTW last year Mogo exercised the call option on the loans without much effort to explain. In November there was an announcement of Mogo tapping their bond from 2018. Actually the yield that Mogo bond investors required when Mogo tapped the bond was at around 12.1%. I guess one doesn't need a degree in finance to figure out what will most likely happen with the Mogo loans that are now sold at 15%-16% yields on Mintos. I bet that within 6-7 months they will all be suddenly bought back. I'm curious to know your thoughts. |
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Post by wiseclerk on Mar 14, 2020 17:16:09 GMT
Those of you who are active on Mintos might have noticed the recent increase in the EUR interest rates on the platform. You can now find 16% loans from Mogo. Naturally, many other loan originators cranked up the interest on their loans. The likely effect of this increase will be another record month as measured by customer investments on the primary market. I think Mintos is having an increasingly hard time, to get (the same volume of) primary market loans sold. On one hand obviously investors are withdrawing a lot of capital On the other hand discounts on the secondary market have risen to 20%, giving a potential yield of 50% (YTM) to adventurous investors. But there seem to be few buyers. At least less buyers then people wanting to sell as offered discounts are increasing by the hour.
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Post by badlord on Mar 14, 2020 17:54:37 GMT
Those of you who are active on Mintos might have noticed the recent increase in the EUR interest rates on the platform. You can now find 16% loans from Mogo. Naturally, many other loan originators cranked up the interest on their loans. The likely effect of this increase will be another record month as measured by customer investments on the primary market. I think Mintos is having an increasingly hard time, to get (the same volume of) primary market loans sold. On one hand obviously investors are withdrawing a lot of capital On the other hand discounts on the secondary market have risen to 20%, giving a potential yield of 50% (YTM) to adventurous investors. But there seem to be few buyers. At least less buyers then people wanting to sell as offered discounts are increasing by the hour. I observe the same. Last year when they placed those 15%-16% Mogo loans they were going like hot cakes. Today the demand is frankly sluggish. I find it understandable for a number of reasons: - Who wants to be taken in for a 3rd time by investing and then seeing the investment bought back and you needing to reinvest at the usual 8.5%-10.5% range?
- With the recent developments on the stock markets, the valuations are such that there are plenty of attractive investments where one can become owner of top-notch companies and enjoy total yields (dividends + buy-back) on the order of 4%-9% plus excellent prospects of growth. Why would you want to put your money into subordinated junk bonds, which the majority of loans on Mintos would be classified as if offered on the financial markets as bonds? The Mogo bond (the highest-rated Mintos LO) is trading at yields typical of B-C rated junk bonds.
- The way Mintos dealt with the recent bankruptcies or semi-bankruptcies aka Aforti leaves a lot to be desired
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Post by southseacompany on Mar 15, 2020 8:24:30 GMT
I think the secondary market being (almost) unusable for three days had a big impact as well, by bottling up selling pressure and then releasing it over the weekend when would-be buyers may not be able to transfer money to Mintos. It also had the second-order effect of making Mintos more risky and thus less attractive for everyone: obviously liquidity risk is higher without a functioning secondary market. Looking at other P2P platforms with a secondary market, like Iuvo and Evoestate, one would expect selling pressure but smaller discounts, maybe up to about 4% at most. Discounts of 10% or even more suggest desperate panic selling, especially in loans with relatively short maturities and from countries with relatively limited covid-19 impact (e.g. Armenia, Indonesia, Vietnam). I do agree with wiseclerk that Mintos will struggle to maintain primary market volumes. Some of the LOs will have to shrink loan issuance because of lack of available capital. LOs strong enough to access the bond market probably now all wish they had done so. |
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Post by badlord on Mar 15, 2020 10:50:31 GMT
I think the secondary market being (almost) unusable for three days had a big impact as well, by bottling up selling pressure and then releasing it over the weekend when would-be buyers may not be able to transfer money to Mintos. It also had the second-order effect of making Mintos more risky and thus less attractive for everyone: obviously liquidity risk is higher without a functioning secondary market. Looking at other P2P platforms with a secondary market, like Iuvo and Evoestate, one would expect selling pressure but smaller discounts, maybe up to about 4% at most. Discounts of 10% or even more suggest desperate panic selling, especially in loans with relatively short maturities and from countries with relatively limited covid-19 impact (e.g. Armenia, Indonesia, Vietnam). I do agree with wiseclerk that Mintos will struggle to maintain primary market volumes. Some of the LOs will have to shrink loan issuance because of lack of available capital. LOs strong enough to access the bond market probably now all wish they had done so. Good point -- the situation on the secondary market dealt a big blow to investors' confidence. I agree with both of you that Mintos will likely struggle to sustain the current volumes of loan investments on the primary market. As for the bond market, Mintos is not cheap for LOs. The December 2018 ruling by FCA on Mintos contains useful info in Paragraph 26: Loan repayments will be made by borrowers to a Mintos client account from which appropriate distributions will be made to investors, including the Loan Originator. Mintos will charge a service fee to borrowers of up to 5% of the value of the loan. This will be charged over the life of the loan and will be collected by deducting a percentage from the repayments it receives, before distributing the balance to investors.So indeed, the bond market might indeed be a better option for LOs in good financial standing. However for the majority of LOs on Mintos it would be a very risky option. Firstly the likely yields during issuance auctions would be in the 20%-30% range and secondly no one would invest in it unless offered as a senior secured bond. On Mintos not honouring the buyback guarantee has little consequences, in contrast imagine failing to pay coupons on a bond. The creditors will force you into bankruptcy. Had Aforti attracted financing only through the bond market, they would long be forced into bankruptcy. With Mintos it is far more relaxed--you can get away with not delivering on the obligations for more than half a year and still be a going on concern.
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Post by southseacompany on Mar 18, 2020 12:50:36 GMT
The panic in the Mintos secondary market seems to be subsiding. Discounts, and thus implied default risks, are shrinking. Most of the eye-popping discounts that remain are more due to movement of interest rates than to risk (i.e. they are low return loans from originators that are now issuing loans with much higher rates).
I think Mintos and the LOs now understand that the short-term nature of P2P is a very risky form of finance, since liquidity can drain in an instant. Thus, we're seeing increased loan extension options and the forward flow product that essentially locks in funds for a longer time. We can expect more of those going forward. I would prefer Mintos dispense with the fiction that investors are buying the underlying loans, and just create a "mini-bond" product, i.e. a balance sheet loan to a LO for a fixed interest rate and period, without tying it to a specific consumer loan or basket of loans. After all, there is no way to evaluate the loans since hardly any info is provided about the borrowers. Now, with forward flow, we don't even choose the underlying loans.
In time, I'd expect more bifurcation in the market, with better originators available to reduce their rates. When Creditstar is at 18% and Cashwagon at 20% while Sun Finance Kazakhstan is also at 20%, it seems clear that either the first two are of great value or the last one is still too low. That being said, should there be another originator default (which is not unlikely), a new wave of panic will probably sweep through every part of the market.
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Post by badlord on Mar 19, 2020 18:41:21 GMT
The panic in the Mintos secondary market seems to be subsiding. Discounts, and thus implied default risks, are shrinking. Most of the eye-popping discounts that remain are more due to movement of interest rates than to risk (i.e. they are low return loans from originators that are now issuing loans with much higher rates). I think Mintos and the LOs now understand that the short-term nature of P2P is a very risky form of finance, since liquidity can drain in an instant. Thus, we're seeing increased loan extension options and the forward flow product that essentially locks in funds for a longer time. We can expect more of those going forward. I would prefer Mintos dispense with the fiction that investors are buying the underlying loans, and just create a "mini-bond" product, i.e. a balance sheet loan to a LO for a fixed interest rate and period, without tying it to a specific consumer loan or basket of loans. After all, there is no way to evaluate the loans since hardly any info is provided about the borrowers. Now, with forward flow, we don't even choose the underlying loans. In time, I'd expect more bifurcation in the market, with better originators available to reduce their rates. When Creditstar is at 18% and Cashwagon at 20% while Sun Finance Kazakhstan is also at 20%, it seems clear that either the first two are of great value or the last one is still too low. That being said, should there be another originator default (which is not unlikely), a new wave of panic will probably sweep through every part of the market. I agree, their forward flow product indeed looks more like a loan that is a liability on the balance sheet of a LO. However I doubt it gives any more security than existing loans with a buyback guarantee. The reason I’m inclined to think so is because a typical bank loan agreement with a corporate or SME states some important properties of the loan, e.g. is it secured? Is it senior to other liabilities of the corporate? Most likely these forward rate loans are not secured and will be subordinated to any other liabilities that a LO has towards banks. PS: I cannot opine on the LOs you mention. I steer clear of LOs that charge borrowers inordinate interest on moral grounds, it is usary incarnate IMHO. Anything above 25% APR is a red flag to me. Unfortunately most of LOs on Mintos don’t suit me as a result.
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