ilmoro
Member of DD Central
'Wondering which of the bu***rs to blame, and watching for pigs on the wing.' - Pink Floyd
Posts: 11,329 
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Post by ilmoro on Aug 3, 2020 21:19:42 GMT
Ton ⓉⓞⓃ Intrigued, how have you extracted / extrapolated the number of AC users?
Nothing exciting. This is the number that AC declare before you login. 11 is the biggest increase in Users for a while.
More interesting today the total for the MLA, which has hovered around £115m to £114m for ages, has suddenly dropped to £111m I wonder if that is being lined up by Users for the new AASM (Access Account Secondary Market)? Just a guess.
There £4m loan repaid, much of which I suspect was held by the MLA plus another £2m in other repayments, mine went back into MLA (or it will once people sell the loans I want to buy  ) PS I think the access total has typo or £100m has vanished
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Steerpike
Member of DD Central
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Post by Steerpike on Aug 4, 2020 8:43:40 GMT
I have been considering whether I would buy AA loans at a discount.
Buying into the AA is essentially buying the whole loan book good and bad, and involves swapping a completely liquid asset, cash, for what is these days a very illiquid asset, AA loans. For that loss of liquidity now it is reasonable to expect a chance of extra profit in the future.
For arguments sake assume that the provision fund is largely ineffective, that 50% of the loans repay in full with no losses, and that the other 50% experience average losses of say 40% then a discount of more than 20% is required to make the transaction attractive.
Perhaps these parameters are pessimistic, but even a realistic guesstimate cannot be made without a careful evaluation of the status of every loan, or at least those that represent the bulk of the book value.
Do I feel lucky?
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blender
Member of DD Central
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Post by blender on Aug 4, 2020 9:08:45 GMT
I don’t think there will necessarily be a loss of liquidity. There’s not going to be any spread and if you buy at 5% discount one day there’s every chance you’ll be able to sell at the same discount three weeks later. Note I’m assuming buyers select a minimum discount and sellers select a maximum discount and the overall AA loan book good/bad/cash blend remains pretty much constant. Are those assumptions wrong?I don't think we know how this will work, even whether sellers set fixed or max discounts. We do not know what visibility buyers will have of the queue of discounts. The Beta testers will know, but they are sworn to secrecy  .
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ceejay
Posts: 975
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Post by ceejay on Aug 4, 2020 10:00:56 GMT
I have been considering whether I would buy AA loans at a discount.
Buying into the AA is essentially buying the whole loan book good and bad, and involves swapping a completely liquid asset, cash, for what is these days a very illiquid asset, AA loans. For that loss of liquidity now it is reasonable to expect a chance of extra profit in the future.
For arguments sake assume that the provision fund is largely ineffective, that 50% of the loans repay in full with no losses, and that the other 50% experience average losses of say 40% then a discount of more than 20% is required to make the transaction attractive.
Perhaps these parameters are pessimistic, but even a realistic guesstimate cannot be made without a careful evaluation of the status of every loan, or at least those that represent the bulk of the book value.
Do I feel lucky?
TBH, that post reads to me like someone trying to drive the market down in order to pick up a bargain!  It's wildly pessimistic, looking at the underlying loans. If you download the loanbook as of now, 8% of your AA holdings are in cash. Also, look at what the market (MLA) thinks of the underlying loans. Search for loans with a maximum discount of 2% or more and you get just 16 loans - out of over 500. I haven't bothered to calculate a weighted average but it can't be more than 1%. Finally, go back to that loan book. AC's estimate (yes, I know!) of the value of each loan is in the capital_value column. It's zero for the real basket cases, as you might imagine. For the small sample of loans which I am personally familiar with where there are serious problems, the number given is at least a plausible estimate of the actual value. Apply those losses to your AA holdings and it comes to about 1.5% of your holding, roughly where the PF is. Of course, there is plenty of scope for the situation to change for the worse - the economy and the housing market in particular could go in any direction over the next 12 months. But, right now, properties are selling at reasonable prices. If that's all there were to consider, the fair price for AA right now is probably still par or very close to it. The really difficult part of valuing an AA holding, I think, is what to make of the liquidity issue. How much extra return do you want to have for the pain of having your money locked up for a few years? If the SM is effective, it won't be locked up at all - but will be subject to an unknown discount on exit. These, I think, will be the drivers in arriving at a fair price for buying into the AA - not wild estimates about the underlying loans.
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rogedavi
Member of DD Central
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Post by rogedavi on Aug 4, 2020 10:16:44 GMT
maybe im being thick but i cant see any secondary market on the website. and was told in the email it would be live from Monday @9am.
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SteveT
Member of DD Central
Posts: 6,875
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Post by SteveT on Aug 4, 2020 10:23:40 GMT
maybe im being thick but i cant see any secondary market on the website. and was told in the email it would be live from Monday @9am. Read the email again! "Whilst we prepare the new marketplace for release, please note that all trading in the Access Accounts will be paused from Monday 3rd August at 9am until it goes live"
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Steerpike
Member of DD Central
Posts: 1,977
Likes: 1,687
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Post by Steerpike on Aug 4, 2020 10:42:50 GMT
I have been considering whether I would buy AA loans at a discount.
Buying into the AA is essentially buying the whole loan book good and bad, and involves swapping a completely liquid asset, cash, for what is these days a very illiquid asset, AA loans. For that loss of liquidity now it is reasonable to expect a chance of extra profit in the future.
For arguments sake assume that the provision fund is largely ineffective, that 50% of the loans repay in full with no losses, and that the other 50% experience average losses of say 40% then a discount of more than 20% is required to make the transaction attractive.
Perhaps these parameters are pessimistic, but even a realistic guesstimate cannot be made without a careful evaluation of the status of every loan, or at least those that represent the bulk of the book value.
Do I feel lucky?
TBH, that post reads to me like someone trying to drive the market down in order to pick up a bargain! It's wildly pessimistic, looking at the underlying loans. If you download the loanbook as of now, 8% of your AA holdings are in cash. Also, look at what the market (MLA) thinks of the underlying loans. Search for loans with a maximum discount of 2% or more and you get just 16 loans - out of over 500. I haven't bothered to calculate a weighted average but it can't be more than 1%. Finally, go back to that loan book. AC's estimate (yes, I know!) of the value of each loan is in the capital_value column. It's zero for the real basket cases, as you might imagine. For the small sample of loans which I am personally familiar with where there are serious problems, the number given is at least a plausible estimate of the actual value. Apply those losses to your AA holdings and it comes to about 1.5% of your holding, roughly where the PF is. Of course, there is plenty of scope for the situation to change for the worse - the economy and the housing market in particular could go in any direction over the next 12 months. But, right now, properties are selling at reasonable prices. If that's all there were to consider, the fair price for AA right now is probably still par or very close to it. The really difficult part of valuing an AA holding, I think, is what to make of the liquidity issue. How much extra return do you want to have for the pain of having your money locked up for a few years? If the SM is effective, it won't be locked up at all - but will be subject to an unknown discount on exit. These, I think, will be the drivers in arriving at a fair price for buying into the AA - not wild estimates about the underlying loans. I have used AA in the past but currently (unwillingly) hold a comparatively small sum in AA with the bulk of my investment in the MLA, I have been withdrawing and have reduced my MLA holding by 50% this year. I was trying to decide if I would reverse direction and start investing again and if so at what level would the discount have to be for me to look more closely. Currently just under 36% of the loans remaining in my MLA are suspended and can't be sold at any discount.
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Post by essexboy on Aug 4, 2020 10:58:54 GMT
I agree with ceejay’s very rational assessment here. Just because some loans are suspended, it does not mean they are worthless. My models spit out low single digit discounts, even with extremely pessimistic assumptions. Largely (and obviously) because the loan book is overcollateralised. So if anyone wants out at 20pct (a discount which would assume the loan book is entirely UNSECURED) please give me a call |
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Steerpike
Member of DD Central
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Post by Steerpike on Aug 4, 2020 12:13:12 GMT
I agree with ceejay’s very rational assessment here. Just because some loans are suspended, it does not mean they are worthless. My models spit out low single digit discounts, even with extremely pessimistic assumptions. Largely (and obviously) because the loan book is overcollateralised. So if anyone wants out at 20pct (a discount which would assume the loan book is entirely UNSECURED) please give me a call I think that this is fair enough, I suspect that my appetite for more AA loans is rather smaller than many others as I am not sure that I would bite even at 20%, but it is likely that others will buy at a lower discount than that. It will be interesting to watch the market develop but I expect that I will continue to buy Premium Bonds (despite the odds) and pay off more of my mortgage when I can.
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ceejay
Posts: 975
Likes: 1,149
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Post by ceejay on Aug 4, 2020 14:08:08 GMT
I agree with ceejay’s very rational assessment here. Just because some loans are suspended, it does not mean they are worthless. My models spit out low single digit discounts, even with extremely pessimistic assumptions. Largely (and obviously) because the loan book is overcollateralised. So if anyone wants out at 20pct (a discount which would assume the loan book is entirely UNSECURED) please give me a call I think that this is fair enough, I suspect that my appetite for more AA loans is rather smaller than many others as I am not sure that I would bite even at 20%, but it is likely that others will buy at a lower discount than that. It will be interesting to watch the market develop but I expect that I will continue to buy Premium Bonds (despite the odds) and pay off more of my mortgage when I can. Paying off the mortgage is almost certainly a great idea. I put a lot of effort into paying off mine early (quite a few years ago now) and I can tell you that, never mind the financial benefits, the psychological boost that comes from being mortgage-free is priceless. I also like Premium Bonds ATM. But I will also be temptable by any juicy offers on an AA SM ("juicy" yet to be defined!)
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dead-money
Rocket to the Moon
Posts: 746
Likes: 654
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Post by dead-money on Aug 4, 2020 17:54:38 GMT
Nothing exciting. This is the number that AC declare before you login. 11 is the biggest increase in Users for a while.
More interesting today the total for the MLA, which has hovered around £115m to £114m for ages, has suddenly dropped to £111m I wonder if that is being lined up by Users for the new AASM (Access Account Secondary Market)? Just a guess.
There £4m loan repaid, much of which I suspect was held by the MLA plus another £2m in other repayments, mine went back into MLA (or it will once people sell the loans I want to buy ) PS I think the access total has typo or £100m has vanished Yep my 0.1% of that £4m is currently sitting in Cash account awaiting clarification on the mechanics of the AA secondary market.
If the buyers can't determine the discount at which they are willing to buy-in then I won't be participating and it will go elsewhere.
NB I didn't take part in the beta as the NDA was absurd.
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theta
Posts: 46
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Post by theta on Aug 4, 2020 19:17:50 GMT
If the buyers can't determine the discount at which they are willing to buy-in then I won't be participating and it will go elsewhere.
Surely it will be a book-building process where prospective buyers can place bids at a specific price (discount) level that are willing to buy at, and sellers at a discount they are willing to sell at, and then an order matching, similar to an opening/closing auction for stocks. I'm considering bidding 95% and offering 99% of par.
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Post by arallu on Aug 4, 2020 19:59:17 GMT
Remember though - it's not possible to trade suspended/defaulted loans. What would the discounts on those be if trading were possible? Edit: not sure why the quote box isn't working. Was replying to this comment: "Also, look at what the market (MLA) thinks of the underlying loans. Search for loans with a maximum discount of 2% or more and you get just 16 loans - out of over 500. I haven't bothered to calculate a weighted average but it can't be more than 1%."
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dead-money
Rocket to the Moon
Posts: 746
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Post by dead-money on Aug 4, 2020 21:14:07 GMT
If the buyers can't determine the discount at which they are willing to buy-in then I won't be participating and it will go elsewhere.
Surely it will be a book-building process where prospective buyers can place bids at a specific price (discount) level that are willing to buy at, and sellers at a discount they are willing to sell at, and then an order matching, similar to an opening/closing auction for stocks. I'm considering bidding 95% and offering 99% of par. Yes, that is how the MLA secondary market operates. However, we are waiting to see if AC takes the same approach with the AA secondary market. They may not have done.
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Post by essexboy on Aug 5, 2020 9:25:55 GMT
I would hope both buyers and sellers would be able to set their own levels yup. Not quite understanding why its taking sooooo long to implement though. Its already Wednesday of ‘next week’ and we have no detail on the market workings and repayments are halted!
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