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Post by flyinvestor86 on Mar 22, 2020 12:40:00 GMT
Coronavirus is greatly affecting world economy as we saw. How do you think it will affect P2P investments? For now there are no changes in Mintos, actually it seems getting even better with interest rates increasing. But surely there will be consequences dont you think?
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Post by wiseclerk on Mar 22, 2020 14:31:38 GMT
For now there are no changes in Mintos, actually Actually there is extreme (!) change at mintos, with payments pending and actual payments done declining and new volume originated tanking
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Post by southseacompany on Mar 22, 2020 16:28:29 GMT
Payday loans did surprisingly well in the last recession. If things are similar this time (which is questionable since the previous recession didn't come with a pandemic), loan defaults will only rise slowly and not as much as some think. The main risk is the liquidity squeeze caused by investors pulling out their funds, which forces lenders to scale their business down quickly. As Niels Bohr was fond of saying, prediction is difficult, especially of the future. However, one can examine the originators to evaluate risk. I'll make two calls on Mintos originators here as an example. I think Finitera is heavily impacted, because it is highly dependent on Mintos for funding. It also operates in physical offices where people often pay in cash (according to the company's CEO), which could be dead weight in a time of quarantine measures. Finally, this is a time when lenders should be aggressively cutting costs and laying off any non-essential staff, but Finitera is still advertising open jobs. On the other side of the coin, I'd expect DanaRupiah to be more resilient, as most of its operations are online, so it should have lower fixed costs and less exposure to containment measures. Furthermore, its loans outstanding on Mintos account for less than 10% of total loan book, so it should be able to withstand even a complete evaporation of liquidity from Mintos. These are clearly times of higher risks and higher rewards, so you can pick up some bargains, but you have to keep in mind any of the LOs could default any day. Then again, that was always the case. This is a high risk form of investment after all. |
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Post by jmot on Mar 22, 2020 18:35:35 GMT
Payday loans did surprisingly well in the last recession. If things are similar this time (which is questionable since the previous recession didn't come with a pandemic), loan defaults will only rise slowly and not as much as some think. The main risk is the liquidity squeeze caused by investors pulling out their funds, which forces lenders to scale their business down quickly. As Niels Bohr was fond of saying, prediction is difficult, especially of the future. However, one can examine the originators to evaluate risk. I'll make two calls on Mintos originators here as an example. I think Finitera is heavily impacted, because it is highly dependent on Mintos for funding. It also operates in physical offices where people often pay in cash (according to the company's CEO), which could be dead weight in a time of quarantine measures. Finally, this is a time when lenders should be aggressively cutting costs and laying off any non-essential staff, but Finitera is still advertising open jobs. On the other side of the coin, I'd expect DanaRupiah to be more resilient, as most of its operations are online, so it should have lower fixed costs and less exposure to containment measures. Furthermore, its loans outstanding on Mintos account for less than 10% of total loan book, so it should be able to withstand even a complete evaporation of liquidity from Mintos. These are clearly times of higher risks and higher rewards, so you can pick up some bargains, but you have to keep in mind any of the LOs could default any day. Then again, that was always the case. This is a high risk form of investment after all. In the current situation P2P becomes a skewed binary lottery. Let me explain what I mean by skewed binary lottery: you invest 1 and if LO goes bust in this market situation (to simplify let's allocate a 10% probability that the LO will default in the next three months which is quite likely in this period of sudden shutdown) your payoff goes to 0, if instead it pays (even with the "high" interest rates) on a short term loan of, let's assume an average of 3 months, you get 1.05 (assuming a high 20% interest rate accrued simply with no amortization). So your expected payoff after 3 months becomes negative at 0.945. In order JUST break even you need to have a rather small (for the times) 5% probability of LO default. If you select loans uniformly among all the LOs this is a considerably small default rate (pretty much 2019 like) you can try to select less risky LOs, but you will concentrate your risk, in addition there is a massive question mark on the many LOs which issue loans in non-EUR currencies and have to repay funding to Mintos in EUR. Most Eastern European currencies (except Bulgarian Lev which is pegged, let's see if it holds to market/economic pressure) have gone down an average 10% against the EUR in the past 3 weeks, if these LOs were not hedged on FX, they will be in serious trouble since this an almost immediate negative cash flow of 10% on funding value (which is usually way bigger than their capital looking at the balance sheet, of course as you have done, you should check the amount of current Mintos funding vs total funding in their balance sheets, the lower the better).
To resume, my main questions as an investor in P2P in this very special period is: Why bother with P2P? A lot of downside for very little upside, which is what happens to default option sellers in a bear market (make some small money most the times of no crisis and loose big when there is a crisis).
At the moment P2P does not compare well with alternative investements. For example very soon being long a basket of very solid blue chips stocks will present much less downside risk (extremely unlikely to go down to zero unlike P2P unless we have a repeat of the 29 depression) and a lot more upside potential. The stock investment instead of being binary like the P2P loans, presents a much more pleasurable payoff continuum and especially much less liquidity issues: as you can see the Mintos secondary market has become a graveyard of sellers and LOs early redemptions which were in great vogue until just a month ago, have gone down to almost zero. In the first 12 days of March I managed to sell at par a bit more than 40% of my Mintos loan portfolio and the cash will soon be moved gradually to the stock market (in an order of magnitude bigger than the P2P investment). I had a lot of cash parked in the past 2 years (since both the bond and stock market were in big bubble territory and, in my opinion, the bond market will stay in bubble territory forever due to the socialist behaviour of the major Central Banks).
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Post by southseacompany on Mar 23, 2020 9:33:55 GMT
Well argued, jmot . However, the potential reward is much larger on the secondary market. For example, if you are more optimistic on Finitera than I am, you could buy an overdue loan now at a -15% discount. If the company is solvent in two months' time, your return will be over 17%, for an annualised return above 100%. Compared to that, the real stinkers are platforms like Robocash and Twino, as well as Mintos Invest & Access, where risk has increased massively but yields have only gone up from about 12% to about 14%. At least on the Mintos secondary market, the prices more or less reflect the risk. As for currency risk, RUB is the worst of the lot, and any Russian originator that didn't have forex hedges in place will probably have trouble meeting its obligations. |
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Post by gmaxkenny on Mar 23, 2020 22:40:32 GMT
Personally I have been withdrawing from the P2P market for the past 3 months as it is now perhaps the riskiest form of investing out there for such a small return. Once the stockmarkets of the world find their bottom their will be great buying opportunities to be had and also the crypto market is performing in a very resilient manner. This could be when crypto comes of age.
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fric
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Post by fric on Mar 24, 2020 13:20:20 GMT
Luckly I have withdrawn almost all of my p2p investments. If this continue, p2p could go worse than stockmarkets. Even now we see economics slowing down, unemployment is starting to rise, this will impact people's ability to pay back loans. I guarantee you we will hear about growing defaults and some of those smaller loans originators (especially in places like Moldavia etc) might go bankrupt and won't be able to honor any buybacks...
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scc
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Post by scc on Mar 25, 2020 6:24:44 GMT
I agree. Unless you are really attached (forcibly or otherwise) to the underlying philosophy the risk/reward has shifted substantially. There won't be a single individual or business untouched by this - and given how close to the edge many of them live, there will be financial casualties.
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Post by geldregiertdiewelt on Apr 11, 2020 9:45:25 GMT
Loan funding brokered by Mintos seems to be falling off a cliff: it now stands at 14.79 Mio EUR for the first 10.5 days of April. Extrapolated this would relate to just 44 Mio EUR for the full April, down another 72% compared to the already imploding March volume! And just 14% of what they had in Jan or Feb! Wow.
( all values taken from mintos.com/en/statistics )
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